The first half of 2024 saw a significant increase in data center development across the U.S., with Austin and San Antonio seeing explosive growth.
A new report from CBRE considers Austin and San Antonio to be secondary data center markets, with the combined capacity of facilities under construction in the two countries increasing fourfold from a year ago to 463.5 MW.
Hyperscalers and AI providers remain key drivers of growth in the data center market, and land availability has developers increasingly looking to Austin suburbs for new developments. This trend has led to a significant increase in under-construction activity in the Austin metropolitan area, with capacity surging from 88 MW in the second half of 2023 to 463.5 MW in the first half of 2024.
Growth is occurring primarily in the north and south Austin metropolitan area, as developers seek to take advantage of the region’s strategic location and favorable business climate.
CBRE’s report highlights the unprecedented growth, declining vacancy rates and changing market trends shaping the industry.
As the data center market continues to expand at an unprecedented pace, challenges with power supply and infrastructure lead times will be key factors to watch, but demand shows no signs of slowing down, and with ongoing digital transformation and increased adoption of cloud and AI technologies, the industry is poised for continued growth.
Surging supply and record low vacancy rates
Supply in primary markets, which includes major data center hubs such as Northern Virginia, Dallas and Chicago, increased 10% (515 megawatts) in the first half of 2024 and 24% (1,100.5 MW) year-over-year. Despite this increased supply, demand remained very strong, with overall vacancy rates in primary markets falling to a record low of 2.8% from 3.3% a year ago. Similarly, vacancy rates in secondary markets plummeted from 12.7% to 9.7% over the same period.
The drop in vacancy rates reflects increased competition for data center space as companies, particularly in the cloud and AI sectors, continue to expand their digital infrastructure to meet growing demand.
Construction activity hits record high
The report also noted that under-construction activity in major markets grew an astounding 69% year-over-year to reach a record high of 3,871.8 MW. However, the rapid pace of construction faces challenges, primarily due to a shortage of available power and longer lead times for electrical infrastructure. These factors are slowing construction completions and creating delays to meet surging demand.
Pre-leasing dominates the market
Demand for new data center capacity remains strong, with 3,056.4 MW, or roughly 80%, already pre-leased of the 3,871.8 MW under construction in key markets. While cloud providers remain major players in leasing available power capacity, artificial intelligence (AI) providers are also generating significant demand, reflecting the growing adoption of AI technologies and the associated need for massive computing power.
Price trends and location choices
Despite the rapid increase in supply, prices in major markets continue to rise, albeit more slowly than in previous years. Average monthly asking prices for demand between 250 and 500 kilowatts (kW) increased 7% in the first half of 2024 to $174.06 per kW per month. The increase reflects a shortage of available electricity, especially in markets where power supply remains the top site selection consideration.
Colocation Market Insights
The colocation sector of the market has also seen strong activity, with overall vacancy rates remaining at a record low of 1.8%. This low availability, combined with continued undersupply, has led to rising prices. Capacity under construction in this sector is almost completely pre-released, highlighting the continued demand for flexible and scalable data centre solutions.
