The rapid adoption of artificial intelligence is driving the financing of data center development to record highs, but AI workloads may still represent only a fraction of the world's data center capacity by 2030.
The use of AI has companies clamoring for large and more expensive data center space as well as power. At the same time, demand for traditional data centers is growing because of the need for more data storage.
AI workloads are expected to represent less than 50% of data center capacity in five years, with cloud-based applications and traditional data storage making up most data center demand, according to JLL's 2025 Global Data Center Outlook report.
"AI is in its infancy," Michael Rareshide, a partner at Site Selection Group, told CoStar News. "There's a lot of growth ahead for AI."
The exponential growth of AI "comes even as Google and YouTube are being tasked with storing more and more data" in traditional data centers, said Rareshide, who specializes in the selection of data center sites.
Financing for new data center development is expected to achieve another record year with about $170 billion in asset value to fund more powerful and efficient data center space, JLL said in the report.
"Some of these deals have gotten so big. [Whereas] traditionally we're looking at 50-megawatt or 100-megawatt campuses, we are now looking at gigawatt campuses, which can cost several billion dollars to develop," Andy Cvengros, a Chicago-based managing director of JLL's U.S. data center markets team, said in an interview. Fifty megawatts can support a small to medium-sized town with between 15,000 and 25,000 houses a year.
For some of these big campuses, development costs to build data center infrastructure can range from $5 billion to $20 billion, Cvengros said. To cobble together that kind of capital, real estate developers must pull together funding from several sources, he added.
"Not everyone is going to have access to the deals that are out there on the table," Cvengros told CoStar News. "Fewer groups can actually handle" these projects that need capital to buy the land, procure the power that can be $50 million to $70 million by itself, and building the structure and critical infrastructure.
The higher costs of bigger projects will lead to the formation of more partnerships, Cvengros said. "I think we're going to see a lot of groups get rolled up and just keep getting bigger and bigger."
Private equity firms have been the main source of capital for data center development in recent years through land deals and construction financing, JLL said in the report. Those types of deals are expected to be the primary way investors gain exposure to data centers this year, the company added.
Despite significant investor interest, the global trading volume for data centers will likely increase modestly in 2025 because of high interest rates and most owners not needing to sell, JLL said.
Seeking power
Power scarcity in major data center markets has led developers to venture into outlying areas for new projects.
The core U.S. data center markets, including Atlanta, Chicago, Dallas-Fort Worth, Phoenix and Northern Virginia, are "pretty well tapped out on power at least for the next couple years," Cvengros said. For example, data center developers like Iron Mountain are expanding to Richmond, Virginia, an area about 100 miles south of its assets in Northern Virginia, because of power supply, Cvengros said.
The rise of next-generation AI is requiring higher rack density and advanced cooling technology — all of which need more power. Still, data centers are only expected to represent about 2% of the world's electricity consumption this year, JLL said. The increase in data center electricity demand through 2030 is projected to be less than a third of the power needed for both electric vehicles and air conditioning, according to JLL's report.
The United States is better positioned than other countries to grapple with data center development and the need to create new power sources, Cvengros said, with plenty of rural land and the ability to generate more power. Globally, areas like Dublin, Ireland, are effectively capped on power with the same thing happening in London, Amsterdam and Germany, he said. Other countries poised to see data center growth are Saudi Arabia and India, he added.
Since tech companies are the largest occupiers of data center space, and because they tend to have the most aggressive targets for net-zero emissions, more of them are turning to nuclear power for data centers.
Several notable nuclear deals were reached in 2024, including Michigan's Palisades Nuclear Plant and Three Mile Island. In addition, the development of small modular reactors, which are a smaller and less powerful nuclear reactor compared with traditional nuclear power plants, gained momentum last year, and agreements are expected to double in 2025, JLL said in the report.
The company also said technology for small modular reactors is still in the early stages of development, adding that commercial deployment in the U.S. is not expected until 2030 at the earliest. But if the reactors materialize as a credible green power source, it could significantly impact site selection and design for data center development, JLL said.
Rareshide of Dallas-based Site Selection Group, who has worked with AT&T, Equinix and TierPoint, said he expects small modular reactors to open new development sites in top data center markets unable to previously access power.
"Sites that you would never be able to consider before because you could never get there with the power would now be connected," Rareshide said.