North American Data Center Vacancy Rates Hit Record Low Despite Significant Supply Growth as Cloud and Artificial Intelligence Providers Drive Demand

North American data center supply grew by a double-digit percentage in the first half of the year as developers delivered more capacity.

However, availability tightened further as increasing demand from cloud computing and artificial intelligence (AI) more than offset the new supply, pushing vacancy to a record low, according to CBRE’s latest North American Data Center Trend Report.

There was 515.0 megawatts (MW) of new supply added in the eight primary North American data center markets in H1 2024, equivalent to adding the entirety of Silicon Valley’s existing inventory. That first-half construction increased the eight-market inventory of data center space by 10% from year-end 2023 and by 24% (1,100.5 MW) a year ago.

Despite the influx of new supply, primary market vacancy rates fell to a record-low 2.8%, down from 3.3% in H1 2023.

Data center construction continues to reach new highs as developers race to meet demand. There was 3,871.8 MW under construction (an increase of 69.2% from a year ago) in the first half of 2024, of which nearly 80% (3,056.4 MW) had been preleased. A shortage of available power and longer lead times for new electrical infrastructure continue to delay completions.

“The trend has been consistent over the past two years: Demand for data center capacity far exceeds supply, which continues to drive up pricing in a material way,” said Pat Lynch, Executive Managing Director and Global Head of CBRE Data Center Solutions. “Based on the preleasing numbers in this report and forecasts for demand, we expect to see this imbalance continue for several more quarters.”

National average rental rates rose to $174.06 per kW/month (a 6.5% increase from H2 2023) due to limited supply and strong demand. Atlanta saw the largest pricing increase across primary markets, growing 26% year over year due to demand from AI usage. Phoenix led primary data center markets in average asking rates at $170 - $210 per kW/month. Prices nationally are expected to increase in the second half of 2024 as rising construction and equipment costs continue to affect the sector.

The demand for high-powered computing has exacerbated the pricing disparity between legacy facilities and new data centers, partially because older data centers don’t have the infrastructure to handle the power demands of today’s users. This trend is likely to persist, opening the door for tertiary markets like Northern Indiana, Idaho, Arkansas, and Kansas to draw interest from hyperscalers and developers due to available land and power availability.

Top Data Center Markets

Northern Virginia remained the largest data center market in H1 2024 with 2,611.1 MW of inventory and 108.1 MW of total absorption, down 87.4 MW (43.9% decrease) year over year. Two markets saw higher leasing activity in the first half of the year: Hillsboro, Oregon (171.2 MW absorbed, a 120% increase year over year) and Phoenix (148.1 MW absorbed, a 238% increase year over year).

Other notable markets include Chicago, where developers have completed 221.1 MW over the past year – a 60% increase in overall inventory. Dallas/Fort Worth reported record preleasing activity, with 94.5% of capacity/space under construction (446.1 MW) already claimed.

“As we look to 2025, several trends are influencing the data center industry, including emerging markets for development due to tax incentives, advancements in renewable energy, power availability and a need for accelerated construction completion timelines,” said Gordon Dolven, director of Americas Data Center Research at CBRE. “Meanwhile, artificial intelligence is shifting how operators select sites. We are seeing more flexibility from developers for sites outside of traditional central business districts if AI training models do not require low latency requirements 24/7.”

Top 10 Largest Markets

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