Reports Confirm A.I.'s Effect On Data Center Supply and Demand in North America

Echoing findings from CBRE's Global Data Center Trends 2023 analysis released in July, in its new 1H 2023 North American Data Center Report, global real estate services firm JLL discerns a supply imbalance which the firm says will keep market conditions constrained through 2024.

The supply and demand discrepancy is driven in no small part by heavy anticipation for adoption of AI technologies by data centers, as exemplified NVIDIA co-founder and CEO Jensen Huang's promise that "a new computing era has begun," in wake of his company's blockbuster second-quarter fiscal 2024 earnings results, as announced last week.

Confirming how companies around the globe are transitioning from general purpose to accelerated computing and generative AI workloads, for Q2 NVIDIA reported record overall revenue of $13.51 billion, up 88% from Q1 and 101% from year ago; and record data center revenue of $10.32 billion, up 141% from Q1, up 171% from year ago.

The Motley Fool notes that NVIDIA's reported market capitalization of nearly $1.2 trillion ranks the company "in a class far above its closest peers," placing in a class with tech giants such as Microsoft, Apple, Alphabet, and Amazon."

JLL reports that the rapid growth of major cloud service providers to support new AI requirements, and the associated thirst for more computing power, has put a squeeze on the availability for space and power for smaller requirements in many North American markets.

JLL's analysis finds that the rapid growth of major cloud service providers toward support new AI requirements and the need for more computing power is making it challenging operators to find space and power for smaller requirements in many markets.

The mounting demand for capacity to meet higher density data center requirements for AI development has led to a significant surge in leasing in the second quarter of 2023, added JLL's report, which noted that as AI requirements grow, data center operators need to adapt their infrastructure to accommodate high power density server clusters.

JLL's data finds that, while the North American data center market saw robust growth in the first half of 2023, most major and secondary markets struggling with unequal levels of supply and demand. The firm notes that the upshot of this situation is a shortage of colocation space with prices on the increase.

While secondary data center markets are expected to support the overflow from tightening primary markets, JLL notes that most of this supply is expected to be delivered in the latter half of 2023 and 2024, is preleased or under exclusivity, and represents limited options for users.

Overall, JLL's analysis finds the data center market experiencing strong growth driven by hyperscalers, AI requirements, and the expansion of edge computing. However, the firm notes that the prevalence of supply and demand imbalances "have resulted in increased preleasing and extended takedown timelines, requiring users to be in the market for capacity well in advance of their preferred go-live date."

"While AI requirements mean increased demand for operators, they must adapt infrastructure to accommodate these needs and innovate for cooling and efficiency to meet sustainability goals," concludes the JLL report's executive summary, which further notes that, "despite interest rate volatility, investor demand remains high, and will continue to attract diverse financing to fuel growth" for the overall market.

JLL's findings line up with the findings of Data Center Hawk's 2Q 2023 Data Center Market Recap. Released last month, Data Center Hawk's recap found that, even at the halfway point, 2023 already stands as the second largest year of market absorption, with North America experiencing its largest quarter of absorption ever, accounting for nearly 850 MW across major markets.

According to Data Center Hawk, in North America, "elevated demand, a lack of available inventory, long delivery timelines, and a narrow power supply is leading development to occur wherever it can, in major established markets and in new emerging markets," with AI contributing to major demand in all markets.