In a year when data centers faced their most difficult power challenges, the industry thrived nevertheless. According to the North America Data Center Year-End 2024 Report from real estate and investment management company JLL (NYSE: JLL), states that the colocation vacancy rate plummeted to a record low of 2.6 percent and absorption levels doubled in just two years.
Much of this growth has been driven at the top by the HPC-AI industry and its high demand for compute infrastructure. But JLL also said a storm is brewing for the industry: the race for resources is reshaping the industry’s landscape, pushing development into new markets and forcing utilities to rethink how they handle the digital economy’s voracious appetite for energy.
“The data center sector remains one of the most favored real estate asset classes due to insatiable tenant demand, limited supply and rising rents,” said Andy Cvengros, Executive Managing Director, Co-Lead of U.S. Data Center Markets, JLL. “However, power availability has become the defining constraint on growth, pushing development into new markets in search of capacity. It’s the new ‘gold rush,’ as developers, occupiers and investors are competing for available power, land and equipment. More power generation is urgently needed if supply is going to keep up with demand.”
The report details demand levels, with North American colocation vacancy at an all-time low despite several years of record construction levels. Absorption totaled 4.4 GW in 2024 – a quadruple increase since 2020 – propelled by cloud providers, technology companies and finance sectors. In 2024, artificial intelligence represented about 15 percent of data center workloads, and by 2030, it could grow to 40 percent.
Eight-eight percent of absorption in 2024 was in primary markets, with Northern Virginia rocketing back to the top spot with 847 MW of absorption in the second half of the year and capturing 50 percent of all demand in North America. Chicago (308 MW), Phoenix (166 MW), Dallas-Fort Worth (123 MW) and Toronto (55 MW) round out the top five markets for absorption in the second half of the year.
The report also examines emerging data center markets across North America, as developers push into new territories searching for power and land. Emerging markets in West Texas, Louisiana, Alabama, New Mexico, Nebraska and Iowa are attracting significant investment from hyperscalers and colocation providers. Hyperscalers are typically the first movers, followed by colocation providers as a critical mass develops.
Charlotte, N.C., is seeing surges in demand from both developers and end users. Over the last 24 months, hyperscalers have acquired roughly 1,900 acres across the Columbus, Ohio, region alone, and Minneapolis, Minn., has emerged as a data center destination due to its robust power generation from existing power plants.
“While core markets remain preferred and are seeing strong growth, the search for power is leading to rapid development in new regions,” Cvengros added. “We’re seeing significant activity in markets adjacent to established data center hubs like the I-35 Corridor in Texas, northwest Indiana and central and southern Virginia, creating opportunities and challenges for both operators and communities.”
Construction activity remained robust in 2024, with more than 2.6 GW of colocation capacity completed during the year with nearly all the space absorbed at delivery. At the end of 2024, a record-setting 6.6 GW of colocation capacity was under construction, with 78 percent of the product under construction in primary markets. The pipeline of planned projects increased to 22.9 GW, confirming strong demand in established markets where power can be secured. Most markets have doubled or tripled in size since 2020, with Austin/San Antonio and Atlanta leading the U.S. in market growth followed by Northern Virginia, the Pacific-Northwest and Phoenix.
“Data center rents continue to surge, with a 12 percent year-over-year increase in 2024 and an 11 percent CAGR since 2020, as landlords maintain strong negotiating leverage in a market with near-zero vacancy,” said Andrew Batson, Head of U.S. Data Center Research for JLL. “Tenants renewing five-year leases are experiencing significant sticker shock, facing up to 50 percent rent increases, and landlord concessions are becoming increasingly rare in this tight market.”
The North American power grid is taxed, resulting in challenges around capacity, scale and transmission. Data center projects are requiring more power each year, as new data centers are now commonly 100 MW, with some projects requesting up to 1 GW of power. Even among the regional utilities with power availability, few have capacity available at the scale required to support modern data centers.
“Channeling immense electrical capacity to a single project requires significant planning and coordination, and, with grid connection wait times averaging four years and potentially costing tens of millions of dollars in lost profits, data center operators are increasingly turning to alternative energy solutions,” said Matt Landek, Division President, U.S. Data Center Work Dynamics, who also leads JLL’s Data Center Project Development and Services. “Natural gas turbines have emerged as the go-to bridge solution, offering affordability, accessibility and rapid deployment. Some projects are even considering permanent on-site natural gas turbines for off-grid autonomy, despite the cost premium and emissions monitoring requirements.”
While grid power is the most affordable, reliable and accessible source of electricity in North America, green-energy solutions like solar, wind, fuel cells, hydrogen, nuclear and geothermal are in various stages of development for data center usage. Some show promise as a primary power source, others could play a role as supplemental green energy.
With lead times still 50 percent above pre-pandemic levels, data center equipment supply chains continue to be challenged but are improving, with most equipment available for delivery in six months or less. Generators, switchgears and transformers take an average of 11 months, depending on manufacturer and model. Reshoring of data center equipment manufacturing is expected to help reduce lead times, but not until 2026-2027 since most of these new manufacturing facilities are currently under construction. Data center operators must develop agile approaches and robust risk mitigation plans.
The data center sector remains among the most favored real estate asset classes for investors, benefiting from increased diversity in lender engagement. The market saw strong appetite throughout 2024 across various deal profiles, from core stabilized assets to value-add opportunities.
Significant future investment appetite is expected from sovereign funds and separate accounts seeking large-scale investments. The single-asset borrower (SASB) and asset-backed security (ABS) markets provided substantial liquidity, with data center ABS volume increasing 49 percent year-over-year to $9.0 billion in 2024.
“There’s robust demand from both cash flow buyers looking to add stabilized assets and operators seeking value-add opportunities,” said Carl Beardsley, Senior Managing Director, Data Center Leader, JLL Capital Markets. “We expect investment activity to increase in 2025, particularly for hyperscale assets as more development projects reach completion.”
