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CBRE Report: North American Data Center Construction Rises 25% to Record High in First Half of 2023, Driven by Growth of AI

Pre-leasing rates exceed 70% in primary North American data center markets

September 6, 2023

North America Data Center Trends H1 2023

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Jenna Perlman

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Demand for data center space overshadowed economic uncertainty and concerns around power availability in the first half of the year. Construction of North American data centers is at an all-time high in part due to the continued growth of artificial intelligence, according to CBRE.

CBRE’s latest North American Data Center Trends Report found there is 2,287.6 megawatts (MW) of data center supply currently under construction, reaching a new all-time high with more than 70% already preleased. At the same time last year, there was 1,830.3 MW under construction. In anticipation of future demand and to secure data center space at current pricing, companies are leasing space up to 36 months in advance of construction completion.

“Data center construction is at an all-time high, driven by strong demand from all users, including AI, hyperscale and enterprise,” said Pat Lynch, executive managing director for CBRE’s Data Centers Solution. “New and existing uses of artificial intelligence cases grew tremendously in the first half of the year, and we expect demand to remain strong with AI driving leasing opportunities in the second half of the year.”

Absorption in the eight primary U.S. data center markets* remained resilient in H1 2023, totaling 468.8 MW, despite challenges within the supply chain. While supply increased 19.2% year-over-year, vacancy remains near a record low of 3.3%. Strong demand paired with a lack of available power and extended timelines have kept asking rental rates climbing. Average primary market asking rents rose to $147.80 per kW/month from $127.50 (a 15.9% year-over-year increase).

Top Data Center Markets

Northern Virginia remained the most active data center market in the first half of 2023 with 918 MW under construction. The market set a record low vacancy rate of 0.94% while power improvement projects are underway. Separately, Chicago recorded a 125% spike in under-construction activity - the largest increase among all U.S. data center markets.

“Most major markets are grappling with power constraints, and developers are facing challenges within their supply chain, but it’s not slowing down the demand for data center space,” said Gordon Dolven, director of Americas Data Center Research at CBRE. “Data center operators are prioritizing power availability, rather than selecting markets based on traditional factors such as location, connectivity, water, and land pricing.”

Top 10 Most Active Markets

Market H1 2023 Total Inventory H1 2023 Under Construction
Northern Virginia 2254.1 MW 918 MW
Hillsboro 248.4 MW 267.3 MW
Silicon Valley 410.7 MW 125 MW
Chicago 367.5 MW 205 MW
Dallas/Fort Worth 499.4 MW 273.3 MW
Phoenix 360 MW 163.5 MW
Toronto 291.3 MW 99.6 MW
New York Tri-State 177.5 MW 99.9 MW
Atlanta 271 MW 235.6 MW
Montreal 135.5 MW 106.5 MW

Other market highlights include Dallas/Fort Worth, which saw the greatest year-over-year increase in absorption of 327%, jumping to 110.6 MW from 25.89 MW. Hillsboro also experienced the largest inventory growth of all primary markets, increasing to 248.4 MW from 139.4 MW (78% year-over-year growth).

To view the full report, click here.

*The eight primary U.S. data center markets are Northern Virginia, Dallas/Fort Worth, Silicon Valley, Chicago, Phoenix, New York Tri-State, Atlanta and Hillsboro.

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2023 revenue). The company has more than 130,000 employees (including Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.