Demand for U.S. Data Centers Surges Despite Labor Gap, Power Strain
By Isabelle Durso August 27, 2024 1:07 pm
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Demand for data centers in the U.S. has increased significantly so far this year, even as operators struggle to fill the labor gap and face concerns over the country’s electrical capacity to power the properties.
The country’s data center market has doubled in size since 2020, with vacancy rates hitting a record low of 3 percent by the end of the first half of 2024, according to a recent report from JLL.
Occupancy rates increased at a 30 percent growth rate over the last four years, while asking rents jumped between 13 percent and 37 percent year-over-year during that same time, the report found.
And, with more and more companies hungry for data center space, there’s been a surge of construction loan requests from real estate investors from other asset classes who find data centers more and more appealing, JLL (JLL) said.
“There appears to be no ceiling for how high this data center demand is going to reach,” Andy Cvengros, managing director at JLL, said in a statement. “Nearly all existing data center capacity is leased up, and pre-leasing currently stands at 84 percent.
“This level of demand is currently unmatched by any other property type,” Cvengros added, saying he expects data center vacancy to reach 0 percent in the next couple of years.
A spokesperson for JLL did not immediately respond to a request for further comment.
Northern Virginia accounted for nearly half of data center capacity growth since 2020, followed by fast-growing markets in Austin and San Antonio, Tex.; Salt Lake City; Atlanta; and Las Vegas and Reno, Nev., JLL said.
Just in May, Amazon (AMZN) paid $218 million for 91 acres of land in Manassas, Va., for data center development, Commercial Observer previously reported. That was after the e-commerce giant dropped $152 million for 140 acres of data centers in Manassas in January.
Logistics giant Prologis also wants to rezone roughly 94 acres of land next to Northern Virginia’s Dulles International Airport for a data center complex that could reach 4 million square feet, while Microsoft (MSFT) recently bought 124 acres in Gainesville, Va., for $465.5 million, CO reported.
And artificial intelligence is a big part of the trend. In recent years, businesses have spent more than $300 billion on AI for data centers, which represents about 20 percent of new demand in the sector over the past year, according to JLL’s report.
“The growing investment in AI is translating into significant data center demand and revolutionizing the way data centers are designed,” Andrew Batson, head of data center research at JLL, said in a statement.
But data centers’ success comes with some roadblocks. Many in the market are concerned that the U.S.’s power grid will be strained by the rapid increase in developments — and all without a viable workforce to maintain the centers.
One of data center operators’ biggest challenges is hiring and keeping employees, with an estimated 10 percent of roles at current facilities unfilled, the report found. And only 15 percent of applicants meet the minimum requirements for those jobs, JLL said.
Still, data center power loads are increasing, with new projects requiring up to 100 megawatts — sometimes even 1 gigawatt — of power, leading to worries that the country’s electricity can’t keep up with the high demand and new developments.
“In the near term, the U.S. power grid is not in danger of running out of capacity, but investments need to be made in expanding the existing and adding new substations in critical areas for data center development,” Cvengros said. “The process of power procurement needs to be greatly improved administratively and in the field. Egregious power load requests and significant transformer delays are curtailing future data center growth.”
Factors such as aging infrastructure, global warming and unpredictable weather events are expected to further challenge the U.S. power grid in the near future, making the need for solutions to curb data centers’ insatiable appetite for power imminent, JLL’s report found.
Isabelle Durso can be reached at idurso@commercialobserver.com.
