Commercial Real Estate News
AI and Streaming Drive Global Data Center Growth Despite Power Constraints
According to a new report from CBRE, power supply has had difficulty keeping pace with data center industry growth across the globe, keeping vacancies low and pushing rents up even amid robust construction.
Despite strong near-term market fundamentals, power supply constraints could limit or delay development in markets like Frankfurt, Tokyo and Silicon Valley. However, such constraints are fueling demand in emerging markets where power is available, such as Charlotte, NC, Johannesburg and Mumbai, which are seeing rising demand for hyperscale development.
"Strong demand for data centers is driving the increase in supply," said Pat Lynch, executive managing director for CBRE's Data Centers Solution. "Still, we're seeing low vacancy rates across the globe, particularly in North America, where vacancy is the lowest in a decade. We anticipate constraints on capacity and development to ease in the next few years, though it won't entirely go away as an issue for the industry. As a result, operators and occupiers are expanding into new markets, which presents exciting opportunities for next-tier metro areas"
CBRE's Global Data Center Report 2023 analyzes key variables, such as total inventory, vacancy rates, net absorption, pricing and rental rates, and availability, in established and emerging markets across North America, Europe, Asia Pacific and Latin America.
The growth of artificial intelligence has contributed to steady leasing activity despite higher interest rates and economic uncertainty and is expected to drive future data center demand.
"Besides AI, technologies like streaming and multi-cloud solutions are expected to increase the need for high-performing data centers," said Lynch.
Data center inventory continues to climb in many markets, where power availability and capacity limits have not yet slowed new development. For example, inventory increased 32% in Sydney from Q1 2022 to Q1 2023 and 19.5% in Northern Virginia - the world's largest data center market.
Despite new development, vacancy rates have declined as strong demand outstrips supply growth. This trend is most notable in Santiago, Chile, where vacancy dropped to 3% in Q1 2023 from 11.7% a year earlier. In Chicago, vacancy fell to 6.7% in Q1 2023 from 8.2% a year earlier- the biggest decrease in any North American market -- even as inventory grew 21%.
"Reliable power is a top priority for many data center operators and technology advances will increase this need going forward," said Gordon Dolven, director of Americas Data Center Research at CBRE. "New development is occurring across all regions despite limited power availability, yet large occupiers are finding it difficult to find enough data center capacity, giving impetus to emerging markets that have robust power supplies."
