Decades after a steel factory closed its doors in western Pennsylvania, a new type of metal product has emerged on the Rust Belt site.
Dozens of Mawson Infrastructure Group’s artificial intelligence data storage pods now whir in Midland, Pennsylvania, near the Beaver Valley nuclear power station.
The metallic pods’ arrival along the Ohio River is just one way the rise of AI is stoking demand for new kinds of data centers near major power sources. The industry is headed toward virtually zero availability of data storage space in major U.S. markets in 2025, leading to a rapid transformation of power production, delivery, pricing and industrial property demand across the country.
Toward the end of 2024, the demand seemingly grew larger by the day with dozens of major announcements. Technology giants and real estate developers have picked up their already frenzied pace of new construction and land acquisition while searching uncharted environs such as shuttered steel plants, suburban office campuses and downtown sites next to skyscrapers. And, as billions of dollars of new capital pour into data centers, the buildings are becoming wider, taller and more visually pleasing than the bunker-like structures of the past.
They’re also soaking up far more energy than ever before, leading technology giants — including Google, Microsoft and Amazon — to form partnerships to revive nuclear power plants, such as one on south central Pennsylvania’s Three Mile Island, or even create new nuclear facilities.
The demand is attracting some of the world's largest real estate owners and developers — some of whom warn that the creative solutions are not arriving soon enough. In top data center markets such as Northern Virginia, Chicago, Dallas, Atlanta and Phoenix, the vacancy rate will soon fall below 1%, and then even lower, said Andy Cvengros, a Chicago-based managing director at JLL and co-leader of the brokerage’s national data center practice.
“In the next year we’re going to see zero percent vacancy situations in core markets,” Cvengros told CoStar News. “Rental rates have doubled in those markets in less than a year and it’s only going to get worse.”
Adding to the challenge is the rapid rate of change in AI technology from the likes of OpenAI’s ChatGPT. AI, which uses more computing energy than traditional users of data storage, is evolving so quickly that some facilities require design changes even as they’re still being constructed.
“Our view is, if you think about AI and quantum computing, the infrastructure required is going to be in a state of continuous evolution,” said Rahul Mewawalla, Mawson's CEO. “You’re going to need to be agile."
Mawson is going off the beaten path to meet high demand, zeroing in on facilities such as dormant steel plants near nuclear power sources. The firm has placed dozens of the modular data storage units on its former steel factory sites in Pennsylvania and Ohio, while seeking codevelopment agreements with warehouse owners looking to break into the data center industry.
“Back in the day, you could build a [speculative] data center and expect that there would be no changes needed for 20 years,” Mewawalla said. “Those days are gone.”
Historic expansion
The U.S. colocation data center market — in which developers rent out storage space to other companies — has doubled in size in just four years, according to a JLL report, yet vacancy by mid-2024 was at a record-low 3% and falling fast.
Construction of new facilities has increased sevenfold in just two years, according to JLL. Data center space is measured in megawatts of power, which indicates how much data can be stored in a facility, rather than square footage.
The pace began slowing early in 2024 because the nation’s power grid was unable to keep up. Even with the slowdown, there was 5.3 gigawatts of capacity under construction nationally, or roughly the electrical consumption of the Tampa Bay, Florida, region, according to the JLL midyear report. A gigawatt is equal to 1,000 megawatts.
Tech’s insatiable appetite has led owners of large parcels, even owners with no data center expertise, to commission power load studies from utilities. Struggling to keep up, some utilities have begun demanding big cash deposits to reduce the backlog and weed out land flippers, Cvengros said.
Demand for data centers is expected to continue into 2025, with the average preleasing rate rising to 90% or more, and rental rates rivaling the record highs of 2011 and 2012 time periods, said Gordon Dolven, research director of data center solutions at CBRE.
“Under-construction data centers are expected to reach record highs in 2025,” said Golven, with megawatt projects being the new norm.
Mike Lash, a first vice president in CBRE’s data center solutions team in Atlanta, said nuclear energy will play a more prominent role in the future of data center development, offering a sustainable and reliable source of nearly carbon-free power.
“They don’t need any outside fuel sources like coal or gas that rely on either pipelines or rail lines,” Lash said. “And they aren’t dependent on the weather. We love our renewables, but solar energy relies on the sun and wind turbines depend on the wind.”
Power crunch
The U.S. power grid is already operating beyond its designed capacity, according to a November report from Ben Levitt, associate director for climate and sustainability with the gas, power and energy futures team at S&P Global Commodity Insights.
“The energy grid was built to supply household toasters, not 5 to 6 gigawatts of additional data center capacity,” according to Levitt. “Increasing demand is forcing an ‘all of the above’ approach to energy generation, including recommissioning coal and nuclear plants, building out solar and wind, and investigating new options.”
The surge in data center development and AI technologies has U.S. electricity demand from the data center industry rising for the first time since the early 2000s, according to the U.S. Department of Energy. Data centers are projected to consume up to 9% of total U.S. electricity demand by 2030, up from 4% in 2023, according to the Department of Energy.
Even one big data center in one state can throw previous projections of growth out the window for power companies.
That was the case in early December when Meta, the parent company of Facebook and Instagram, announced a $10 billion data center campus in northeast Louisiana to cater to the AI boom. The 4 million-square-foot data center will be Meta's largest in the world. To supply power, Meta signed a deal with Entergy Louisiana, a subsidiary of New Orleans-based Entergy Corp., a public utility and Fortune 500 company that has 3 million customers across Arkansas, Louisiana, Mississippi and Texas.
The single agreement raised Entergy’s annual sales growth rate projection 3 percentage points, an Entergy spokesman told CoStar News in an email. Entergy’s projected growth rate now stands at 11% to 12% through 2028.
Entergy said it would build three combined-cycle combustion turbines with a total capacity of 2,260 megawatts, construct two Entergy-owned substations, six customer-owned substations, and install nearly 100 miles of transmission lines.
Similar growth nationally is expected to come at a higher cost to data center operators as utilities ramp up development of new power sources, industry professionals say.
But data center expansion should be able to continue unimpeded despite increased power expenses, Sam Korus, director of research, autonomous technology and robotics for Ark Investment Management, said in a report last summer. Electricity accounts for only about 9% of total data center costs, he said, and operators have room to discover cost efficiencies.
Megaprojects
Besides Meta’s Louisiana project, there are several examples of major companies building their own sprawling new data center campuses, in some cases away from what are considered top markets.
Energy provider Constellation struck a 20-year purchase agreement with Microsoft to restart a nuclear reactor at Three Mile Island. The reactor slated to power up for the Microsoft deal has sat idle since 2019 and is next to the reactor that sustained that partial meltdown in 1979.
The Three Mile Island power deal is expected to add 835 megawatts, or enough to power about 700,000 houses. The agreement will help Microsoft meet its goal to power its data centers with carbon-free energy.
Google recently signed a deal to obtain energy from seven small reactors to be built by California startup Kairos Power. Google said the small reactors will generate about 500 megawatts of power for its data centers by 2035.
That deal was announced in October, the same month that Amazon and utility company Dominion Energy unveiled a nuclear energy deal on the East Coast. Small modular reactors will help Amazon power its data centers in Northern Virginia, by far the country’s largest data storage market.
Third-party developers that lease data storage space to other companies also have been focused on huge multiphase projects.
That includes Compass Datacenters’ ongoing effort to demolish the 2.4 million-square-foot former Sears corporate headquarters near Chicago in Hoffman Estates, Illinois, and replace it with a 200-megawatt campus over five buildings.
As part of the project, Compass is working closely with energy provider ComEd to bring ample power to the site.
Major players
Among real estate developers and owners involved is Blackstone, a private equity firm whose chief executive, Stephen Schwarzman, said in October that it has $70 billion of data center investments and a pipeline of prospective development over $100 billion. Blackstone's wholly owned data center owner, QTS Realty Trust, did more leasing last year than the preceding three years combined.
Prologis has long been the world's largest warehouse investor. Now, as it shifts some properties into the storage of data rather than goods, Prologis also become a major buyer of power.
Already a data storage player for a quarter-century, Prologis has increased the pace of its development in recent years through a partnership with Skybox Datacenters. Prologis has been scaling its power procurement to support new data center development with 1.6 gigawatts of power throughout the globe — enough to power 1.2 million average-sized homes — and another 1.4 gigawatts in the advanced stages of procurement.
The San Francisco-based real estate investment trust has another 490 megawatts under construction. Prologis is working with the “largest hyperscalers and generative AI thought leaders,” said Chris Curtis, global head of data centers for Prologis, in an initiative that he told CoStar News has been underway in earnest since the beginning of 2024 as Prologis seeks to convert its assets into the most profitable uses. In all, Prologis has more than 1.2 billion square feet of space on more than 12,000 acres of land.
Prologis' team continues to identify conversion opportunities within its 5,600-building portfolio, Curtis said, adding that the company has converted 29 projects dating back to 1999. In the next four years, Prologis expects to invest between $7 billion and $8 billion to develop about 20 new data center opportunities, he said.
DataBank, a data center owner working with some of the world's largest tech companies, recently landed nearly $2 billion in equity from new and existing investors to fund the construction of U.S. data center campuses.
The Dallas-based firm, with more than 70 data centers in 27 U.S. markets, raised the capital, including $1.5 billion from Australia’s largest pension fund, to help fund the construction of data center campuses in its home market, as well as Northern Virginia and Atlanta, at a time when there’s a development “bottleneck,” caused by a lack of new power, said Kevin Ooley, president and chief financial officer.
By keeping to major U.S. metropolitan areas, Ooley said when one market is tapped out of power — something that happened in Northern Virginia two years ago — DataBank can offer a solution in a nearby major market, pivoting that customer to an Atlanta data center with capacity. DataBank is sticking with major metropolitan areas even as some data center providers head to smaller markets, Ooley said, because the firm is always thinking about who could backfill the data center if AI demand wanes.
"There are certain markets where utilities are three years out to getting more power or longer," Ooley told CoStar News.
The scarcity of power put Primary Digital Infrastructure, a firm co-founded by former Digital Realty CEO Bill Stein, on a project team to build a $3.4 billion data center campus leased to tech firm Oracle for AI uses in West Texas.
“Northern Virginia would be a great place to put a data center, but there’s no certainty on when the next megawatt would be provided,” Stein told CoStar News. This led Primary Digital to choose Abilene, Texas, about 150 miles west of Fort Worth, for a two-building hub totaling nearly 1 million square feet of data center space. It is one example of developers looking outside big markets to smaller cities, where former bitcoin mining facilities or industrial properties are seen as would-be opportunities for data center developers and investors.
But even emerging markets have challenges, according to John McWilliams, head of data center insights at Cushman & Wakefield.
“It’s more expensive to build per megawatt,” he told CoStar News. “There’s a lot that goes into it, but one of the big factors is the cost of labor. Those areas might have lower wage levels, but they don’t have the skilled labor needed to operate data centers and companies are having to import in talent from other states.”
Urban projects
While some developers have moved farther out to find big sites, others are looking up instead, taking on vertical projects in or around city centers.
Chicago, for example, has seen multiple vertical projects including Digital Realty’s longtime facility in an eight-story former printing building and CoreSite’s four-story CH2, both in the South Loop business district. Local firm Metro Edge Development Partners plans a five-story data center in the Illinois Medical District.
In the heart of the Loop, surrounded by skyscrapers, Chicago firms Prime Group and Capri Interests earlier this year paid $12 million for the six-story former Cboe Global Markets headquarters building at 400 S. LaSalle St.
They plan to convert the vacant structure, once used for corporate offices and an open-outcry trading floor, into data storage at the south end of that financial district. The developers said the wide, column-free floors, high ceilings and structural capacity to handle the weight of servers and other equipment make the building ideal for conversion.
For ground-up projects in urban and suburban settings, municipalities are asking developers to move away from nondescript fortress-like designs of the past and provide more curb appeal.
Today’s designs can include colorful panels, more windows and other features such as bricks and glazing that are reminiscent of a Class A office building, said Dan Drennan, principal and data centers sector lead at Dallas-based architecture firm Corgan. Such buildings also can include branding and amenities for workers, a departure from decades ago when “the purpose was not to be seen,” he said.
“Those are opportunities to really create something that feels more like the place that it’s in, as opposed to just being this big data center that sticks out,” Drennan said.
The future
Industry professionals say it could take years for construction of data centers, and the power they need, to catch up to demand. As he approaches 2025, JLL’s Cvengros said most of his practice is now focused on deals for 2026, 2027 and 2028.
“Any new product, we’re tracking about 90% of it as preleased before a shovel even goes in the ground,” Cvengros said. “Just incredible stuff.
“We’re seeing more activity than we’ve ever seen in this industry, more capital being deployed, more groups getting into this space, projects getting much larger and projects going into secondary or tertiary markets.”
There are clues that projects that seem massive by past standards could soon be dwarfed, including OpenAI CEO Sam Altman’s reported plans to build several data centers with 5 gigawatts of power each. One data center of that scale would match or exceed the electrical consumption of many large cities today.
“We’re in the infancy of this,” Cvengros said. “Right now, AI is a question-and-answer type of thing, running analysis of basic data. As we get into images and video, that takes 100 times the computing power to put it all together. Once these systems start talking to each other and writing their own code, they become a growing, self-improving ecosystem.”