AI Driving Data Center Demand to New Heights
Most of the supply expected to be delivered in the latter half of 2023 and 2024 has been preleased.
Not so long ago, artificial intelligence was a word and a concept not common in ordinary conversation. Today, AI is part of virtually every mention of technology, and its rapid adoption has driven demand for data centers to house the computing power needed for AI applications through the roof.
Space is in such short supply that users should have it lined up long before they plan to go live, even as prices rise, according to JLL’s North America Data Center Report for H1 2023. “Most of the supply expected to be delivered in the latter half of 2023 and 2024 has been preleased or is under exclusivity, resulting in limited options for users,” the report stated.
The largest cloud service providers are expanding quickly to meet their AI needs, with a “significant surge” in leasing in Q2 2023. In the process, they are squeezing out smaller users that need less space and power, while creating demand for data centers in smaller cities.
“Hyperscale centers are usually located in cities and can typically house 10,000 racks with a capacity in excess of 80 megawatts,” according to a separate JLL article about why smaller data centers are taking off. “Edge data centers, by comparison, have a smaller capacity between 500 kilowatts to 2 megawatts and, as the name suggests, are located on the outer edge of networks.”
“To reduce latency, hyperscalers and cloud companies are building small data centers close to population centers outside of core markets. Generative AI and growth of connected devices will continue to drive demand for edge data center requirements,” the H1 2023 report stated.
At the same time, it noted, data center operators will have to adapt their infrastructure to accommodate high power density server clusters.
Fortunately for these companies, data center lender and investor demand remained strong, despite rising interest rates, JLL reported. The sector experienced record-setting M&A activity and higher EBIDTA multiples compared to asset-level deals. Furthermore, a variety of lenders including life insurance companies, banks, debt funds and CMBS/SASB will be attracted to the data center market, JLL predicted.