Data center vacancies hit historic lows despite record construction

The supply of data center space in major markets increased by 34% year-over-year to 6,922.6 megawatts in 2024, according to research from CBRE. That rate of growth is considerably higher than the 26% increase seen in 2023, the commercial real estate service provider notes. Primary markets such as Northern Virginia, Atlanta, and San Francisco had a record 6,350 megawatts (MW) under construction at the end of 2024, which is more than double the 3,077.8 MW capacity being built at the end of 2023.

Yet even with those record construction rates, the overall vacancy rate in primary markets fell to a record-low 1.9% at the end of 2024. What that means is colocation providers have almost no free space to rent. There is only a handful of facilities with 10 MW or more that are slated for delivery in 2025 and are not yet leased, a reflection of how scarce inventory really is.

Because of this, the cost of capacity is going up. The average monthly asking rate for a 250-to-500-kilowatt requirement across primary markets increased by 12.6% year-over-year to $184.06 per kilowatt (kW).   

Atlanta was the top growing primary market in 2024, with net new capacity of 705.8 MW, easily beating perennial leader Northern Virginia’s 451.7 MW of new capacity. This was the first time any market surpassed Northern Virginia in annual net absorption. Significant growth is also taking place in Charlotte, Northern Louisiana, and Indiana thanks to tax incentives, available land and greater power availability.

Data center headwinds

The growth comes despite considerable headwinds facing data center operators, including higher construction costs, equipment pricing, and persistent shortages in critical materials like generators, chillers and transformers, CRBE stated.

There is a considerable pricing disparity between newly built data centers and legacy facilities, reflecting the premium placed on modern, energy-efficient infrastructure. Specifically, liquid/immersion cooling is preferred over air cooling for modern server requirements, CRBE found.

On the networking side of things, major telecom companies made substantial investments in fiber in the second half of 2024, reflecting the growing need for more network infrastructure and capacity to accommodate growing demand from AI and data providers.

There have also been many notable deals recently: AT&T’s multi-year, $1 billion agreement with Corning to provide next-generation fiber, cable and connectivity solutions; Comcast’s proposed acquisition of Nitel; Verizon’s agreement to acquire Frontier, the largest pure-play fiber internet provider in the U.S.; and T-Mobile’s entry into the fiber internet market via partnerships with fiber-optic providers.

In the quarter, Meta announced plans for a 25,000-mile undersea fiber cable that would connect the U.S. East and West coasts with global markets across the Atlantic, Indian and Pacific oceans. The project would mark the first privately owned and operated global fiber cable network.

Data center outlook

CBRE made a series of projections for the coming years:

• Transitioning from coal-generated to renewable-energy power generation will continue to gain traction in 2025. On-site solar, wind, geothermal and nuclear generation are all being evaluated, with natural gas being an interim alternative to coal.
• Power will remain the number one priority for selection of greenfield development sites.
• Flood plains will be less of a concern for data center development sites, so long as they have ample power availability and raised construction to avoid flood damage.
• Despite record construction activity, the data center market will struggle to keep pace with demand, leading to higher utilization rates in existing facilities and tighter vacancy rates.
• Supply chain challenges will persist and keep large project timelines over three years.
• Applications on cell phones, smart devices, laptops and desktops are using large amounts of data for processing, storing and computing data, driving growth and network demand as well as demand for data center capacity.