The need for data centres is increasing, driven by workloads for artificial intelligence (AI) and sustained cloud usage, according to a recent analysis by JLL. Due to the increased demand, colocation space is becoming more and more expensive.
According to the “1H 2023 North American Data Centre Report,” both main and secondary markets are having difficulty keeping up with demand for data centre capacity. Enterprises from a variety of industries, including finance and healthcare, are vying for the limited amount of data centre space.
Due to the high demand, colocation providers have raised their prices, with year-over-year hikes in main markets ranging from 20% to 30%. Secondary markets that have some spare capacity, including Austin, Texas; Reno, Nevada; Salt Lake City; and Columbus, Ohio, are able to meet overflow demands from primary markets.
The substantial disparity between supply and demand was highlighted by Curt Holcomb, Executive Vice President and Co-Lead of JLL’s data centre markets practise, who said that this situation is unusual. He stated that in the fourth quarter of the previous year, the demand for data centre capacity started to exceed the supply.
The majority of the data centre supply anticipated to be delivered in the second half of 2023 and 2024 has already been pre-leased or is bound by exclusivity agreements, the survey further notes. Through 2024 and potentially into 2025, this restricted availability is anticipated to remain in place.
Organisations in need of data centre capacity should start planning early, according to Holcomb. In order to acquire space, he advises organisations to think carefully about their needs and schedule and to contact providers well in advance.
The report also notes a number of trends that are fueling the demand for data centre capacity, including:
1. AI Adoption: Demand for data centres is predicted to increase as a result of AI. AI firms are launching new AI services, cloud providers are expanding their GPU-as-a-service offerings, and businesses are quickly embracing AI technology.
2. High-Density Server Clusters: To support AI requirements, which in some circumstances can push rack densities to 50kW to 100kW, data centre operators will need to create strong, high-density server clusters and infrastructure.
3. Edge Data Centres: As hyperscale cloud providers place edge network nodes closer to population centres outside of core markets, demand for edge data centres is increasing. This lowers latency and improves performance for workloads such as AI applications.
Despite increasing interest rates, lenders and investors are nevertheless interested in the data centre business. The capital markets’ strength in the data centre industry is a result of both historically high merger and acquisition activity and a wide range of lenders, including life insurance companies, banks, debt funds, and the CMBS/SASB market.