The first half of 2024 has seen substantial growth in North America's data center market, driven by the rising demand for cloud services and artificial intelligence (AI). Supply in primary data center markets increased by 10%, adding 515 megawatts (MW) of capacity. This marked a 24% year-over-year growth, underscoring the sector's robust expansion. Vacancy rates hit record lows, with primary markets reporting a 2.8% vacancy rate, down from 3.3% in the same period last year.
Despite these increases, data center development is facing critical delays due to a shortage of available power and longer lead times for electrical infrastructure. Under-construction capacity in primary markets reached an all-time high of 3,871.8 MW, up by 69% from the previous year. Notably, 80% of this capacity is preleased, with cloud providers absorbing most of the available power. AI providers are also contributing significantly to this demand.
Atlanta has emerged as a leader in data center development, with construction activity increasing by 76% year-over-year, adding 1,289.1 MW to the pipeline. Austin and San Antonio saw remarkable growth, with their combined construction activity quadrupling to 463.5 MW. Secondary markets, overall, experienced significant declines in vacancy rates, which dropped from 12.7% last year to 9.7% in H1 2024.
As demand for high-power computing grows, rental prices in primary markets have also risen. The average asking rate for a 250-500 kW requirement rose by 7% in the first half of 2024 to $174.06 per kW/month. The highest year-over-year price growth was recorded in Atlanta, where rental rates surged by 26%, driven largely by demand from AI providers.
Investment in new data center developments remains strong, fueled by tenant demand and rental growth. Digital Realty led several high-profile transactions in the first half of the year, including a $7 billion joint venture with Blackstone to develop hyperscale data centers across Paris, Northern Virginia, and Frankfurt. AWS also completed the first phase of its $650 million acquisition of Talen Energy’s nuclear-powered data center campus in Pennsylvania, reflecting the growing use of alternative energy sources in the sector.
Despite rising development costs, which continue to push rental rates higher, demand for data centers remains ahead of supply. This imbalance is expected to persist into the second half of 2024, particularly as AI applications and cloud services require more advanced infrastructure.
The second half of 2024 is poised for continued growth, although challenges around power availability and infrastructure delays are expected to worsen. Developers are already preleasing space two to four years in advance to meet future demand. Increased reliance on AI is also expected to drive further innovation in cooling technologies and power management as data centers become more energy-intensive.
The North American data center market is set to maintain its upward trajectory, driven by the growing demand for digital applications and high-performance computing solutions. Key regions like Northern Virginia and Dallas-Ft. Worth continue to lead in total inventory, while secondary markets like Austin and Central Washington rapidly expand their capacity.
The information in this article is based on data from CBRE's H1 2024 North America Data Center Trends report.