The demand for data centres in the United States has reached unprecedented levels, with the first half of 2024 setting new records for growth and development.
According to JLL's U.S. Data Centre Report - Midyear 2024, the colocation data centre market has doubled in size over the last four years. This rapid expansion highlights the critical role these facilities play in modern society but also raises concerns about the strain on the U.S. power grid and a looming shortage of skilled talent.
Unstoppable demand driving record occupancy Rates
The booming demand for data centres shows no signs of abating as 2024 progresses. Vacancy rates have hit a historic low of 3%, while occupancy has grown at a 30% compound annual growth rate (CAGR) since 2020. This surge has led to significant increases in asking rents, which have risen between 13% and 37% year-over-year, depending on the size of the lease.
“There appears to be no ceiling for how high this data centre demand is going to reach,” said Andy Cvengros, managing director and co-lead of U.S. Data Centre Markets at JLL. With pre-leasing standing at 84% and nearly all existing capacity already leased, Cvengros anticipates vacancy rates will approach 0% in the coming years.
Power grid pressures and rising energy demands
The explosive growth in data centres is placing unprecedented demands on the U.S. power grid. The sector's power requirements have been increasing at a 21% CAGR, with some new data centre projects requiring over 1 gigawatt (GW) of power. Although data centres accounted for only 3% of the nation's total power usage in 2023, projections suggest this could exceed 11% within the next decade.
The time required to connect a new data centre to the power grid can be as long as five years, forcing developers to seek temporary energy solutions such as fuel cells or natural gas turbines. These delays have pushed development into secondary markets and rural areas, where power capacity is more readily available. Additionally, some hyperscalers, have begun acquiring power plants to ensure a stable energy supply.
The rapid expansion of data centres has also highlighted a significant challenge: finding and retaining skilled talent. Currently, 10% of positions in existing data centres remain unfilled, a rate more than double the national average. The technical nature of these roles means that only a small fraction of applicants meets the required qualifications, leading to prolonged hiring processes.
Subscribe today for free
Compounding this issue is the fact that 33% of the technical workforce is nearing retirement age, a figure expected to double in the coming years. As data centres continue to expand into rural areas, the limited local labour pools present additional staffing challenges.
Despite these challenges, the data centre sector remains a hotbed of investment activity. Investor interest in data centres has surged, with cap rates for core transactions remaining in the low-to-mid 6% range. The growing trend of operators recapitalizing stabilized assets to fund new developments is expected to provide significant opportunities for investors in the coming years.
“Data centre investments offer a unique value proposition,” noted Carl Beardsley, Senior Managing Director at JLL Capital Markets. “With the residual value of data centre assets closely tied to power allocation, these investments stand out from other real estate asset classes.”
RELATED STORIES
Embracing the AI revolution – What’s in it for data centres?
AI rises as hyperscale and edge drive data centre demand, finds JLL
