By Jim Damicis, Senior Vice President, Camoin Associates
Introduction
Digital information and content continue to grow across our daily lives and economy. This includes information and content related to streaming, coding, social media platforms, research, marketing, business services, personal services, health services, education, and more. Additionally, artificial intelligence is creating new data and information at speeds much greater than ever before. This creates increased demand for the infrastructure and systems that move and store data, including data centers. Regarding data center growth, JLL reports, “Data center demand is growing at an exponential rate, with data creation expected to increase at a 23 percent CAGR through 2030. Rising generative AI workloads are having the greatest impact on data storage, followed by continued cloud and hyperscale growth. Investors are furthermore drawn to the sector by the sticky tenant proposition with high renewal probability1.” This article provides insights on the recent market, real estate, and investment trends in the data center industry and how critical factors like energy, land use, and local acceptance impact investment locations.
Revenue and Investment Trends
As reported by Cushman Wakefield,2 data center revenues have been experiencing annual growth, and this is projected to continue. Furthermore, the projected demand is expected to be driven by AI.
Investment trends mirror recent and projected growth in data center revenues. FDI Markets tracks investment and related data on data centers3. Based on this data, Between 2019 and September 2024, for all projects invested in the U.S.:
- There were a total of 429 projects that created 40,001 jobs, with an average project size of 93 employees.
- The total capital investment for these projects was $197 billion, with an average project size of $459 million.
- 2024 was a peak year for the 2029-2024 period, with 118 projects, 17,194 jobs created, and $68.5 billion invested.
- The source country from which the investment was made into the U.S. was led by the United States, with 338 projects out of the 429 total, or 78.7 percent. Sweden, Hong Kong, Australia, Japan, and Ireland are the next five source countries with the highest projects in the U.S.
In terms of companies in which investment was made, the big tech companies (Google, Microsoft, Meta, and Amazon) were all at the top of the list, along with digital infrastructure and real estate companies.
Real Estate and Location Trends
The increasing demand, revenues, and investment in data centers are creating opportunities for real estate development across the U.S. and the Americas. Vacancy rates have decreased due to supply being constrained by longer project completion times and constrained energy supply while new capacity for energy is in the pipeline. Delays are also attributable to longer times needed for equipment and related supplies. Regarding vacancy rates, CBRE reported that “overall vacancy rate for primary markets fell to a record-low 2.8 percent in H1 2024 from 3.3 percent a year earlier, while the overall vacancy rate for secondary markets fell to 9.7 percent from 12.7 percent over the past year 4.” Similarly, Cushman Wakefield reports for 2024: “With power and component lead times constraining delivery of new supply, vacancy region-wide has fallen to three percent, driving over 80 percent of deliveries to be pre-leased in major markets and pushing lease rates higher 5.”
These trends result in investors and companies moving beyond the typical primary markets. Cushman Wakefield reports, “Interest in large-scale power availabilities, plentiful land and less strict latency requirements for AI, has driven hyperscalers and operators to expand in a host of historically peripheral markets such as Indianapolis, Kansas City, Reno, Charlotte, Salt Lake City, Minneapolis, Philadelphia, Montgomery, among many other outlying areas6.” Putting all of the factors together, Cushman Wakefield produces a list of top ten and emerging markets.
Summary and Conclusions
In attracting and supporting data center expansion and attraction, economic and business developers should assess their community and region in terms of critical factors that drive locations. Most importantly, this includes:
- Assessing whether your community has the assets required, including energy and grid capacity and diversity, water, and land, with energy and land capacity being the top criteria
- Assessing and confirming the willingness of the region and communities to support data centers in terms of zoning and land-use regulations, incentives, and overall public support.
Both of these can best be answered and reflected in local and regional economic plans and strategies that article targeted goals and actions.
Regarding location factors and specifically workforce, economic and business developers often overlook the importance of labor because data centers are not seen as dense with workers per square foot of space. However, workforce and skill gaps are impacting every industry, and a recent JLL report found, “Finding the right talent remains a challenge for data center operators, and the issue is becoming more acute given the rapid expansion of the sector in recent years. Roles in the industry can be highly technical in nature given the complexity of data center operations. Data center development is also expanding into rural areas with limited labor pools, presenting a unique set of staffing challenges. Given the technical nature of the data center industry, only about 15 percent of applicants meet the minimum job qualifications. Consequently, positions can often take 60 days or more to fill. Due to these hiring challenges, it is estimated that ten percent of data center roles at existing facilities are unfilled, more than twice the national average across all industries 7.”
A key takeaway for economic and business developers interested in data centers is be prepared. Markets and economic dynamics for data centers are changing rapidly along with technology. Therefore, success in supporting and attracting investment typically requires local and regional expertise and a commitment to prioritizing them as an ongoing target.
Sources:
1 Rapid Expansion – Opportunities and challenges for the data center sector, JLL, www.us.jll.com/en/trends-and-
2 2024 Global Data Center Market Comparison, Cushman Wakefield, https://cushwake.cld.bz/2024-
3 Data Centers in the US Since 2019, January 2019 to September 2024, FDI Markets, www.fdimarkets.com/
4 North America Data Center Trends H1 2024 – Cloud & AI Providers Drive Demand, CBRE, www.cbre.com/insights/reports/
5 Americas Data Center H1 2024 Update, Cushman Wakefield, www.cushmanwakefield.com/en/
6 ibid
7 Rapid Expansion – Opportunities and challenges for the data center sector, JLL, www.us.jll.com/en/trends-and-
