The first half of 2024 has witnessed a remarkable surge in data center development across the United States, with Austin and San Antonio seeing explosive growth.
In a new CBRE report, Austin and San Antonio are considered secondary data center markets. Their combined under-construction activity has quadrupled from a year ago to 463.5 MW.
Hyperscalers and AI providers remain key drivers of growth in the data center market, with developers increasingly focusing on the suburbs of Austin for new development due to land availability. This trend has led to a significant increase in under-construction activity in the Austin metropolitan area, which saw its capacity jump from 88 MW in H2 2023 to 463.5 MW in H1 2024.
Growth primarily occurs north and south of the Austin metropolitan area as developers seek to capitalize on the region’s strategic location and favorable business environment.
The CBRE report highlights the unprecedented growth, tightening vacancy rates, and evolving market dynamics shaping the industry.
As the data center market continues to expand at an unprecedented pace, the challenges of power availability and infrastructure lead times will be critical factors to watch. However, with no signs of slowing demand, the industry is poised for continued growth, driven by the ongoing digital transformation and the increasing adoption of cloud and AI technologies.
Surge in Supply and Record-Low Vacancy Rates
Supply in primary markets, including top data center hubs like Northern Virginia, Dallas, and Chicago, increased by 10%, or 515 megawatts (MW), in H1 2024, with a year-over-year increase of 24%, or 1,100.5 MW. Despite this increase in supply, demand has been so robust that the overall vacancy rate for primary markets fell to a record-low 2.8%, down from 3.3% a year earlier. Similarly, secondary markets saw their vacancy rates plummet from 12.7% to 9.7% over the same period.
This tightening of vacancy rates reflects the intense competition for data center space as businesses, especially those in the cloud and AI sectors, continue to expand their digital infrastructure to meet growing demands.
Under-Construction Activity Hits Record Highs
The report also notes a staggering 69% year-over-year increase in under-construction activity in primary markets, reaching a record-high 3,871.8 MW. However, the rapid pace of construction has been met with challenges, primarily due to a shortage of available power and longer lead times for electrical infrastructure. These factors have delayed construction completions, creating a backlog in meeting the burgeoning demand.
Preleasing Dominates the Market
Demand for new data center capacity remains robust, with nearly 80% or 3,056.4 MW of the 3,871.8 MW under construction in primary markets already preleased. While cloud providers continue to be the dominant players in leasing available power capacity, artificial intelligence (AI) providers also drive considerable demand, reflecting the broader adoption of AI technologies and the associated need for vast computing power.
Pricing Trends and Site Selection
Despite the rapid increase in supply, pricing in primary markets continues to climb, albeit slower than in previous years. The average monthly asking rate for a 250- to 500-kilowatt (kW) requirement increased 7% in H1 2024 to $174.06 per kW/month. This increase reflects the ongoing shortage of available supply, particularly in markets where power availability remains the top consideration in site selection.
Colocation Market Insights
The colocation segment of the market has also seen significant activity, with the overall vacancy rate remaining at a record-low 1.8%. This low vacancy and the continued supply shortage have driven prices higher. Under-construction capacity in this segment is nearly fully preleased, highlighting the continued demand for flexible, scalable data center solutions.
