Record demand for data center space is expected through the second half of this year and into 2024, according to a recent report from real estate firm JLL. But the trend, driven by the rapid adoption of artificial intelligence, is affecting local markets differently.
Phoenix and Salt Lake City outpaced the largest data center market, Northern Virginia, as the leaders in demand for the first six months of 2023, JLL said.
Data center property trends are assessed not by square footage but by megawatts, the standard unit for measuring their power handling capabilities. One megawatt is equivalent to 1 million watts, or the power output of about 10 car engines.
Phoenix and Salt Lake City put up the biggest demand shown through net absorption, the difference between tenant move-ins and move-outs, with 194.5 megawatts each. Close behind it was Northern California with 127.5 megawatts.
Primary markets have a limited inventory of data center space, which has led to rent increases of 20% to 30%, according to JLL. New construction was heaviest in Northern California and Northern Virginia.
Secondary markets including Salt Lake City, Columbus, Ohio; Reno, Nevada; and Austin, Texas, are projected to support the excess demand that can’t be met in space-constrained larger areas.
In greater Dallas, a limited supply is dwindling as demand remains above historic levels and more of Texas’ new construction is based in Austin and San Antonio.
Most of the data center projects set to be completed in the third and fourth quarter has been preleased, according to JLL. Much of the anticipated 2024 supply will be preleased as well, JLL said, resulting in limited options for tenants.