Data Centers in Demand Despite Global Power Limitations

All eyes are on power and the electric grid, especially during these hot summer months and year-round in markets rich in data centers.

In a recent report CBRE notes there’s a worldwide power shortage that could inhibit growth in the global data center market, a CRE asset class that demands significant amounts of energy to operate.

“Sourcing enough power is a top priority of data center operators across North America, Europe, Latin America, and Asia-Pacific,” CBRE said. “Certain secondary markets with robust power supplies stand to attract more data center operators.”

Nonetheless, new development is occurring across all four regions. Northern Virginia remains the world’s largest data center market with 2,132 megawatts of total inventory, CBRE tabulates.

The rapid growth of artificial intelligence—along with streaming, gaming, and self-driving cars—is expected to drive continued strong data center demand.

CBRE said leasing activity has shown “remarkable resilience” despite higher interest rates and economic uncertainty. Technology, financial services, healthcare, and telecommunications industries are contributing to positive absorption.

Northern Virginia had 355.6 MW of positive absorption from Q1 2022 to Q1 2023. Dallas/Fort Worth, Chicago, and Silicon Valley trail significantly at 62.8 MW, 62.5 MW, and 45.7 MW, respectively.

Northern Virginia’s available MW decreased from 46.6 MW to 38.4 MW over the past year, despite inventory growing 19.5%.

Chicago leads CBRE’s North America in showing the most significant decrease in vacancy, from 8.2% to 6.7% year-over-year. Despite future power availability uncertainty and elevated power costs, Silicon Valley remains near a record low vacancy at 2.9%.

However, given the short supply, prices for data center capacity are rising.

Globally, Singapore has the highest rental rates at $300 to $450 per month for a 250- to 500-kilowatt requirement. Chicago has the lowest at $115 to $125.

Vacancy rates are dipping, especially in areas such as Singapore—the world’s most power-constrained data center market. It has less than 4 MW of available capacity and a record-low vacancy rate of less than 2%, CBRE said.

Low supply, construction delays, and power challenges are impacting all markets. For example, Querétaro, Mexico, has only 1.2 MW available for lease.

For now, it seems the world has the power demand under control. The Wall Street Journal this week reported that demand for electricity this summer in the US has reached record levels, but the power grid has held up because of a combination of luck and new energy supplies.

“Last summer, grid operators in Texas and California narrowly avoided the need for rolling blackouts as electricity reserves in two of the country’s biggest power markets dwindled. Residents were asked to use less power as temperatures blazed,” WSJ said.

Since then, California has benefited from a surge in hydroelectric generation after an unusually wet winter and spring, WSJ reported, as well as a build-out of large-scale batteries that discharge power in the evening as solar generation declines.

Texas has added solar farms that are supplying power during the hottest parts of the day and helping to offset unexpected mechanical problems with some coal-fired and gas-fired plants.