Colocation capacity in North American data centers has dropped to near zero availability, and most of the construction pipeline is already pre-leased, which will impede economic growth and threaten national security, says a new report by a data center construction and real estate services provider JLL.
The latest JLL North America Datacenter Report says keeping up with demand could take as much as $1 trillion in fresh data center builds and that companies looking to expand their data center operations may be limited to preleasing in new developments. Such action could be followed by a year or more of waiting for construction to be completed before taking occupancy. So, while the lack of capacity is good for data center providers, it’s bad for their potential customers, the study found.
“The construction pipeline of 8 GW is 73% preleased, signaling that any meaningful loosening of market conditions remains a few years away at minimum,” said Andrew Batson, head of data center research for America in the report. “Even if preleasing activity slows significantly in the near-term, vacancy would likely remain below 5% through 2027. A more likely scenario is that vacancy holds in the 2% range through 2027.”
Vacancy in the North American market has declined to a new record low of 2.3 percent, and JLL projects that figure will remain the same or go even further down from now through 2027. For comparison, the vacancy rate stood at 9.8 percent in 2020.
As bad as the wait for data center capacity has become, the wait for power is even worse. The average wait time for a grid connection across North America is now four years, according to the report, with power delays representing a significant hurdle in efforts to alleviate the shortage of new colocation capacity.
Most of the top markets have doubled or even tripled in size since 2020, with Columbus, Ohio leading the way with 1800% growth, followed by Austin/San Antonio at 500% growth. However, they started from a small base in 2020. In absolute terms, Northern Virginia (+3,975 MW), Dallas (+1,008 MW) and Atlanta (+828 MW) have seen the largest increase in capacity.
The markets with the largest development pipelines including under construction and planned projects are Northern Virginia (7 GW), Phoenix (5 GW), Dallas (5 GW), Chicago (4 GW) and Las Vegas/Reno.
What is unknown is the impact of AI data centers. JLL specifically avoided mentioning of AI-oriented data centers and stuck to the general term. It might not be a fair comparison anyway, since AI data centers are populated with hardware specific to AI, whereas colocation data centers are empty and you put whatever you want in them, including AI hardware.
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