AI boom: Enormous growth in US data centers
New US data centers are being built at the drop of a hat. It's not enough. If you need significant capacity, you have to rent years in advance.
(Image: Next Layer)
The boom in machine learning (ML) and artificial intelligence (AI) has triggered a boom in data centers. The capacities of US data centers in the eight most important regions (primary market) have increased by a quarter in just one year. At the same time, there is less free capacity than ever before. In the first half of the year, just 2.8 percent was unlet. This is causing rents to rise.
This is according to the semi-annual North America Data Center Trends survey by real estate specialist CBRE. "The growth of AI and ML is leading to significant changes in data centers," says CBRE, "including the increasing use of graphics processors and liquid cooling to dissipate the heat of energy-intensive applications". Existing buildings are often unable to meet the new requirements, which is why the construction boom is focusing on completely new facilities. Note: The following figures refer to the top 8 US regions for data centers in the first half of 2024, unless otherwise stated.
Lease agreements years in advance
The most important region by far is Northern Virginia with a good 2.6 gigawatts of capacity. This is 357 megawatts more than in the first half of 2023, but not even 39 MW are available. With +222 MW, Chicago has the second-largest growth and is poised to overtake Dallas/Fort Worth (+92 MW to 592 MW) as the second-largest US location with a total of 590 MW.
Phoenix (+151 MW to 511 MW, fourth-largest region) and Hillsboro, Oregon (+179 MW to 427 MW), which has displaced Atlanta (+39 MW to 310 MW) from 6th place, have also seen triple-digit MW growth. In between, Silicon Valley (+49W to 459 MW) is in 5th place. Land is relatively expensive there, which also leads to high rents: Data centers in Silicon Valley charge $155 to $250 per kilowatt of capacity per month, compared to $135 to $170 in Dallas. The average of the eight regions is 174 dollars, an increase of 18.6 percent compared to 2023.
Compared to 2020, capacity has increased sevenfold in Hillsboro and more than doubled in four other of the top 8 regions. At the same time, more is being built than ever before. In the first half of the year, data centers with a total capacity of 3.9 gigawatts were under construction – eight and a half times the total construction activity in 2020. In addition, more than half a GW is under construction in the secondary market (ninth to sixteenth largest region), where only a single-digit percentage is still available.
In Atlanta (1.3 GW) and northern Virginia (1.2 GW) in particular, the excavators are rolling. Most of the plants under construction have long since been leased, with 3.1 GW of the total 3.9 GW already gone. If you need significant capacity, you should conclude rental agreements two to four years before commissioning.
4 years to wait for electricity
The lead times are likely to become longer rather than shorter. This is due to difficulties with the power supply. "Power connection lead times will continue to increase in the second half of 2024 as available equipment such as transformers, switches and generators are in short supply," reports CBRE, "difficulties in procuring necessary equipment will lead to connection delays of up to four years."
The construction boom is likely to continue, not least due to falling interest rates. Equinix and PGIM announced in the first half of the year that they would jointly invest 600 million dollars in a new data center in Silicon Valley. A consortium led by Mitsubishi will invest 400 million dollars in two facilities in Dallas. They are already fully leased. In March, Amazon's AWS also signed a 650 million dollar purchase agreement for a data center right next to a nuclear power plant in Pennsylvania.
Power supply, fiber optic backbones and land prices are the most important parameters for new data centers. This is likely to lead to new hyperscale data centers being built in previously less important US regions. CBRE expects increasing interest from investors, particularly in northern Indiana, Idaho, Arkansas and Kansas.
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