Demand for data center space is showing no signs of slowing, according to the latest research from Cushman & Wakefield.
According to Cushman’s latest research, the vacancy rate for data centers in the Americas has fallen to 3%. And when new data centers are built? They’re finding tenants quickly. Cushman & Wakefield reported that more than 80% of newly built data centers in major U.S. markets were pre-leased.
What’s behind the low vacancy rates? Cushman & Wakefield said that demand for artificial intelligence and cloud data centers surged in the first half of 2024, in both established and emerging markets. And this demand is only growing, so data center space should remain at a premium in the near future.
According to Cushman & Wakefield’s report, absorption in the data center space is poised to surpass the record levels set in 2023.
This isn’t to say that there aren’t challenges in the data center sector. The biggest? Power availability remains a concern, prompting developers to explore geographic areas they might otherwise not have considered. Despite an expanding supply pipeline, demand continues to outpace supply, resulting in consistently declining vacancy rates across the board.
This is good news for secondary markets, including many in the Midwest.
“Interest in large-scale power availabilities, plentiful land and less strict latency requirements for AI, has driven hyperscalers and operators to expand in a host of historically peripheral markets,” said Bo Bond, executive managing director with Cushman & Wakefield.
Bond cited areas such as rural Georgia, North Carolina, Pennsylvania, Texas, Minnesota and the Dakotas as being top targets for data center providers looking for more land and a strong power supply.
“Active areas of the country are being defined more by the utility provider service area than a more traditional U.S. metropolitan development marketplace,” Bond said.
In areas in which utility providers have been unable to provide power sooner, operators have collaborated with power companies to deliver substations, transmission lines or source micro-grid power. Many of these agreements are now being signed directly with third party energy generation developers, with wind, solar, battery storage, natural gas and even geothermal developments moving quickly across markets.
Going forward, Cushman & Wakefield expects to see more operators continue to acquire large-acreage high-power capacity sites in even more rural markets. Additionally, some operators will begin to work to secure power along longer timelines.
“AI data centers are increasingly becoming integral to both hyperscale and colocation development pipelines,” said Ali Greenwood, executive director with Cushman & Wakefield. “Although hyperscalers remain the primary end users in this space, several GPU cloud providers are entering the market, seeking hyperscale-level capacity across the region.”
AI training facility plans primarily focus on large, latency-tolerant locations in rural markets, while AI inference facilities are strategically positioned near major cloud regions. As hyperscale growth accelerates in both established and emerging markets, expect further developments in newly emerging data center markets. This trend will be driven by providers and investors prioritizing power transmission and hyperscaler deployment.
Virginia remains the largest data center market in the world, with 13.2GW of combined existing, under construction and committed pipeline supply, followed by the other primary markets in the space: Atlanta (3.8GW), Phoenix(2.9GW), Chicago (2.4GW), Dallas (2.3GW) and Silicon Valley (1.3GW). All these markets have seen continued expansion despite varying levels of limitations to power availability.
Portland and Eastern Oregon (1.9GW), and Columbus, Ohio (1.8GW), have quickly risen as comparably large markets driven by both hyperscale self-build and colocation deployments.
