Demand for data center space continues to reach new heights as digital services pervade daily consumer and business activities. Data center leasing surged in 2022 to 2,250 megawatts (MW) of power in North America, following a previous high point of 950 MW in 2021, according to datacenterHawk. Now, the data center sector may face headwinds in trying to keep pace with demand for power and land in 2023, amid longer delivery timelines and shortages in key markets, Data Center Frontier posted in a recent blog.
Throughout 2022, hyperscale operators aggressively locked down capacity for long-term cloud services growth even as data center capacity construction is slowed by supply chain disruptions. Nonetheless, demand remains strong with hyperscale single leases averaging over 70 MW, and more data center lease transactions across a broader base of customers from enterprise to financial, gaming, and tech companies.
As a consequence, the data center vacancy rates have dropped to a new low of under 4 percent with only about 300 MW of combined available power across major North American markets, and much of that either stranded or in non-contiguous pieces under 5 MW. More importantly, an adequate supply of power to data centers is becoming constrained by supply chain issues and community resistance. In key markets like Silicon Valley, Northern Virginia, Dallas and Chicago, data center demand is outpacing required electrical grid infrastructure, reports Data Center Frontier.
In many markets, developers are pursuing a strategy called ‘covered land plays,’ while waiting for utilities to get the power to the site. In a covered land play, a developer acquires an income-producing property with an existing business or a building for future redevelopment, or may even demolish existing buildings to make room for purpose-built data centers.
According to North American Data Centers, 100-acre parcels or more with options to add additional land for a power substation to serve hyperscale companies are highly sought after. However, a shortage of transformers for electrical distribution systems has been a factor in slowing utility grid expansions.
As space and power grow scarce in major data center hubs, some requirements are shifting to secondary markets, which have more land and power available to support new capacity. A recent Cushman and Wakefield report highlights the growing interest in secondary markets such as Portland, Phoenix, Columbus, and even Canadian markets, as data center operators seek larger sites with affordable power.
Northern Virginia remains the world’s largest data center market with Ashburn the hub for connectivity and data gravity. But with the limited supply of land for data center development in the Ashburn area, new sub-markets are developing in Arcola, Leesburg, and Prince William County in Virginia and in nearby Frederick County, Maryland, where Quantum Loophole is developing a 2,100+ acre site with power, water, and high-capacity fiber connectivity to Northern Virginia, Inside Towers reported.
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