Groups building power-intensive data-center facilities are having to look farther afield for opportunities.
A recent report by Cushman & Wakefield Inc. (NYSE: CWK) found, among 569 data-center facilities in markets across the Americas, the vacancy rate stood at 4.9% at the end of 2024, and 83% of upcoming capacity is already preleased. In the second half of 2024, North American markets reached 20 gigawatts of operational capacity, with 1.5 GWs added in the second half specifically. That brought the total capacity added in 2024 to 3.2 GWs.
While historically popular data-center markets remain the most robust locations today — with Northern Virginia leading the way, at 5.9 GWs in operation at the end of 2024 — new facilities and hyperscalers are targeting somewhat off-the-beaten-path locations to build increasingly bigger data-center facilities and campuses.
Among eight primary markets in North America identified by CBRE Group Inc. (NYSE: CBRE), net absorption jumped 450% in four years — from 329.6 megawatts in 2020 to 1.8 GWs in 2024. Those eight markets are: Northern Virginia, Dallas-Fort Worth, Silicon Valley, Chicago, Phoenix, New York Tri-State, Atlanta and Hillsboro, Oregon.
The overall vacancy rate among those eight markets fell to a record low of 1.9% at the end of 2024, according to CBRE. Because of supply and demand dynamics, rents are also soaring, with the average monthly asking rate for a 250-to-500-kilowatt requirement growing 12.6% annually between the end of 2023 and end of 2024.
Those dynamics and the overall artificial-intelligence boom are propelling hyperscalers and other operators to historically peripheral markets, Cushman noted, such as Indianapolis and Kansas City in particular. Wisconsin also is seeing investments worth billions.
Ethan Silverstein, executive vice chairman at Cushman & Wakefield, said Meta Platforms Inc.‘s (Nasdaq: META) plan to build a $10 billion data-center facility in northeast Louisiana was a major indication that location strategies for data-center groups have changed radically in recent years.
“If you were in the data-center field for the previous 20 to 25 years, there was no way Meta was going to do that,” he said.
The ability to source power has become the most crucial location strategy for most data-center operators.
Silverstein said there’s a major difference between data centers for normal cloud computing — what has historically dominated the sector — and the high-density data centers needed for artificial intelligence, high-performance computing and machine learning.
“When it comes to location preference, it’s almost like beggars can’t be choosers, and the preference is where there’s an abundance of reliable power,” he said. “Many of the hyperscalers are going to where the power is or can be created.”
In some places, Silverstein said, data-center investment has been welcomed with open arms, including in rural markets that once had a major jobs creator that has since left, such as former coal-mining facilities in West Virginia or a shuttered manufacturing plant in Pennsylvania. Those sites are frequently targeted for data centers, he said, because they already have some amount of needed infrastructure in place to support a new facility.
Other markets, including somewhat more densely populated areas like suburbs, are more likely to see opposition from local residents and government officials. Northern Virginia, the epicenter of data-center development in the U.S., has especially seen concerns from residents over energy capacity, environmental impacts and other issues. Officials within the state’s Loudon County are grappling with the tax revenue the facilities have generated for the region with efforts to clamp down on future development.
In many places, energy to supply planned new facilities has a multiyear timeline. It’s not uncommon today for operators seeking two- to three-year delivery times to face delays of five years or longer, according to Cushman.
Operators have turned to new solutions to fill the power-supply gap in many markets, but some of those solutions can be cost-prohibitive, Silverstein said.
“We’re finding many groups who were maybe not historical power providers or weren’t in the energy field saying, ‘The margins are so high here, and I have the right type of real estate and topography and resources already embedded in the land … for this,'” he said. “We’re seeing groups purchase turbines and attempting to sell power behind the meter [but] there’s not too many of those circumstances.”
Source: “AI boom drives data center development in unexpected markets”
