Data Center Developers Eye Rural Markets as AI Strains Capacity

Demand for new data centers has outstripped the stock available because developers are having difficulty finding adequate supplies of vital inputs like power and other key components. Vacancy has been pushed down to just 3% and over 80% of centers coming online in major markets have been pre-leased, driving up lease rates, according to a new Cushman & Wakefield report.

“Interest in large-scale power availabilities, plentiful land and less strict latency requirements for AI, has driven hyperscalers and operators to expand in a host of historically peripheral markets such as rural Georgia, North Carolina, Pennsylvania, Texas, Minnesota and the Dakotas, among many other outlying areas just beyond the ‘major’ established data center markets,” commented executive managing director Bo Bond.

Some operators are working with power companies to deliver substations and transmission lines or to source microgrid power. Many agreements are now being signed directly with third-party energy generation developers, including alternative energy companies involved in wind, battery storage, solar, natural gas and geothermal production. The report predicts an influx of operators seeking large-acreage, high-power capacity sites even in rural markets, as well as efforts to secure power along longer timelines.

The report noted that AI data centers are becoming essential for both hyperscale and colocation development pipelines. Graphic processing unit (GPU) providers are also in the market for data centers to enable hyperscale capacity.

According to the report, AI training facilities, where AI models are taught to learn from data and make decisions based on it, primarily focus on large, latency-tolerant locations in rural markets. However, AI inference facilities, where AI models are used to allow machines to process information quickly, are usually strategically positioned near major cloud regions.

“As hyperscale growth accelerates in both established and emerging markets, expect further developments in newly emerging data center markets. This trend will be driven by providers and investors prioritizing power transmission and hyperscaler deployment,” the report stated.

Currently, Virginia remains the world’s largest data center market with 13.2 GW active or in development. It is followed by Atlanta (3.8 GW), Phoenix (2.9 GW), Chicago (2.4 GW), Dallas (2.3 GW), and Silicon Valley (1.3 GW). Portland and Eastern Oregon (1.9 GW) and Columbus, OH (1.8 GW) are also in the mix, due to hyperscale self-build as well as colocation deployments.

“Active areas of the country are being defined more by the utility provider service area than a more traditional U.S. metropolitan development marketplace.”