Exploding AI Growth Driving Up Data Center Use and Asset Prices in U.S.
Data centers enjoy biggest price increases of all commercial assets in 2023
According to CBRE's latest North American Data Center Trend Report, North American data center pricing approached record levels in 2023, influenced both by strong demand and power constraints that limit how much new capacity can be brought online.
In 2023, national average asking prices rose to $163.44 per kW/month from $137.86 per kW/month (18.6% year-over-year increase) and will likely achieve double-digit growth again in 2024. Meanwhile, supply in the eight primary U.S. data center markets grew by 26%, totaling 5,174.1 megawatts (MW), and vacancy remained near a record low at 3.7%.
"The U.S. data center market saw the largest pricing increase of all commercial real estate assets last year, which is a testament to the market's resiliency and impact of robust requirements for available power," said Pat Lynch, executive managing director for CBRE's Data Centers Solutions. "There is no sign that demand will slow down as the economy becomes more digital and artificial intelligence expands to new sectors. More operators and developers are prioritizing decisions that allow them to provide high value, technologically advanced spaces, which will help to drive future demand."
Data center construction also reached a new high in H2 2023 with 3,077.8 MW under construction in primary markets, a 46% increase from the same time last year (2,109.2 MW). With AI driving demand across most major markets and project delays persisting, securing space early is crucial. To that end, 83% (2,553.1 MW) of under construction supply is already pre-leased.
While supply chain disruptions have eased, construction costs are rising due to ongoing shortages in critical materials like generators, chillers and transformers. That trend is likely to persist throughout the year. Power constraints are creating opportunities for emerging data center markets in Nevada, Indiana and Wisconsin to host large data center facilities.
Top Data Center Markets
Northern Virginia remained the most active data center market in H2 2023 with 1,237 MW of construction and 424.4 MW of total absorption for the year. Prices also rose significantly to $150-$190 per kW/month from $100-$140 per kW/month (42% year-over-year increase). However, Phoenix led U.S. data center markets in average asking rates at $170 - $200 per kW/month.
"There are several trends influencing the U.S. data center market as we head into 2024," said Gordon Dolven, director of Americas Data Center Research at CBRE. "New markets for development are emerging due to tax incentives, advancements in renewable energy, power availability and a need for accelerated completion timelines while artificial intelligence is shifting how operators choose select sites.
Other notable markets include Atlanta, which saw a surge in building with 732.6 MW under construction - a 211% increase since H1 2023 (235.6 MW) and 388% increase from H2 2022 (150 MW). Dallas/Fort Worth reported strong preleasing activity, with 90% of capacity/space under construction (118 MW) already pre-leased.
