Datacenter demand driven by AI... but constrained by power shortages

Not content with drinking up all our water, now we'll compete with DCs for power

Demand for datacenter space is currently at a high in many markets around the globe because of the AI boom, despite issues with securing adequate power, at least according to commercial real estate firm CBRE.

Power shortages appear to be a common theme, listed as the top concern for bit barn operators across all regions (North America, Europe, Latin America and Asia-Pacific), while vacancy rates continue to decline across most global markets due to strong demand, the company says.

Large corporations face increasing difficulties securing datacenter capacity, thanks to construction delays and power challenges impacting all markets, according to CBRE's latest report, while AI is expected to continue to drive demand in future.

In North America, datacenter inventory grew by 24.4 percent during Q1 2024, compared with the same period last year. This led to 807.5 MW of capacity being added across the four largest bit barn markets in the region - Northern Virginia, Chicago, Dallas and Silicon Valley.

CBRE noted that local governments have been forced to take steps to address power constraints by actions such as simplifying permitting and integrating more renewable energy into the grid.

In Europe, the data dormitory market grew by nearly 20 percent during the quarter, with "significant development" seen in all of the four major markets in the region - Frankfurt, London, Amsterdam and Paris (FLAP).

Paris even hit 40 percent year-on-year growth, despite capacity supply shortages across the continent, especially in core markets like Frankfurt.

CBRE says that pre-leasing of facilities is now common, a trend that has been noted before, both here and in North America. This points to an ongoing need for investment in data dormitory development, it says, although sourcing power remains a key challenge.

"Power and land shortages, combined with increased regulation are the most prominent inhibiting factors when it comes to datacenter development in Europe," CBRE's Head of Datacenter Solutions for Europe Andrew Jay commented.

The Latin American market saw its inventory grow  by 15 percent year-on-year, while for Asia-Pacific the figure is 22 percent, with Tokyo, Sydney, Hong Kong and Singapore each containing over half a GW of capacity, despite tighter planning constraints in Singapore.

The combination of high demand and shortage of bit barn availability is inevitably pushing up prices. Average asking rates for a typical 250 to 500 kW requirement across all four featured North American markets jumped by 20 percent in Q1, CBRE says.

There is a similar picture in Europe, where prices are rising because of high demand and rising construction costs, with Frankfurt seeing the steepest increase at 15 percent, while rental rates in London have also steadily climbed over the past 18 months.

Latin America shows a mixed picture, with overall rental rates rising slightly compared with last year, while Bogotá in Colombia saw a drop in colocation rates. In Asia-Pacific, pricing has steadily increased due to rising construction and operational costs, with Singapore now one of the most expensive global markets. Tokyo's pricing has also increased, but pricing in Sydney remains steady.

CBRE's analysis is based on the four largest datacenter markets by inventory in each global region, but high demand in these is driving investment in emerging markets, such as Oslo and Madrid, which are now seeing rising demand for bit barn capacity.

"Secondary European markets are growing for a variety of reasons," Head of Datacenter Research in Europe Kevin Restivo said. "Hyperscaler ambitions and lower power costs have driven rapid growth of markets such as Oslo, given its accessibility and economic importance. In some cases, this makes them hotspots of datacenter construction," he added. ®

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