New Markets Opening Up Amid US Data Center Boom – JLL

The demand for new data center developments in the US is soaring, according to JLL’s H2 2023 North American Data Center Report, released today (February 28th).

According to the real estate and investment management company, this demand is being fueled by the rise of AI and continued growth in the cloud and hyperscale markets.

Related: Hyperscalers in 2024: Where Next For the World’s Biggest Data Center Operators?

The boom, too, has caught the eye of savvy investors and private equity firms who aim to join the rush and offer opportunities for new entrants into the market.

However, the challenges are many. While primary data center regions like Northern Virginia and Phoenix lead the pack with 1.6 GW and 884 MW of transactions signed, this is followed by secondary markets like the Northwest region, which saw 554 MW of new capacity signed in the second half of 2023.

Seeking Power, Finding New Land

Related: The Pros and Cons of Wind Power for Data Center Sustainability

The overwhelming embrace of AI and large language models like ChatGPT, which has grown from 100 million monthly users in January 2023 to 100 million active weekly users by November, is forcing current data center owners to retool their data centers to squeeze every possible megawatt per square foot to slake AI's power thirst.

This includes adding more floors, onsite power generation, and upgrading their cooling from traditional air-cooling technologies to more efficient methods such as liquid cooling.

According to Andy Cvengros, managing director of data center markets at JLL, the search for more power and more land is forcing data center users to plan further ahead in their IT strategy to consider new regions and "commit to space and power on accelerated timelines to find capacity to fit their requirements."

When land and power capacity become limited, developers search out new markets. New regions are stepping up to meet the demand. Salt Lake City is doubling its capacity. Atlanta has been boosting its own while new regions like Columbus, Minneapolis, Reno, Mississippi, and Indiana are burgeoning.

Almost 20% of the data center capacity under construction is from these secondary markets, not including the foreign investors and users expanding into Latin America, said JLL.

Third-Party Experts

According to the report, data centers are gaining increased interest from outside investors, with the sector seeing a 9% CAGR in transactions since 2013. Yet while companies with backing from these funds are expanding rapidly, they “don’t have the framework for the talent and process to run these data centers.”

As such, these companies are turning to property management and other industry experts with a “deep bench of engineers trained for critical environments,” the report said. “Data centers are a unique asset class, requiring specific skills to operate at their best, and, with labor shortages for trained engineers, investors seeking to capitalize on this opportunity will need to partner with seasoned operators.”