North American Data Center Market in the First Half of 2024: Structural Changes and Investment Opportunities Driven by the AI Boom
1 ️ ESG Market Overview: Tight supply and demand are accelerating
The North American data center market in the first half of 2024 entered an unprecedented state of tight supply and demand. According to CBRE's latest report, vacancy rates in key markets have dropped to a record low of 2.8%, and around 80% of the 3.87 GW capacity under construction has already been pre-leased. This situation is mainly due to a rapid increase in demand from AI-related companies in addition to continued demand from cloud providers.
This tight supply and demand is not simply a temporary phenomenon; it suggests structural changes in the industry. Demand for high-density and high-power computing capabilities is rapidly increasing along with the increase in AI workloads, and this is widening the gap between old and new data centers.
2 ️ ESG Price Trends: Moderate Increase Continues
Prices are on an upward trend, reflecting market tightness. The average monthly rent on the 250-500 kW scale increased 7% from the previous year to $174.06/kW/month. What is noteworthy is the 26% price increase in the Atlanta market, which clearly shows the concentration of AI-related demand.
However, this rate of price increase has slowed compared to the previous year, and there is a possibility that the market is searching for a new equilibrium point. Considering that construction costs and equipment costs continue to rise, further price increases are expected in the second half of 2024.
3 ️ CY SUPPLY SIDE ISSUES: POWER INFRASTRUCTURE BOTTLENEKS
The supply side is facing serious challenges in response to the rapid increase in demand. Although the capacity under construction in major markets reached 3,872 MW, a 69% increase from the previous year, restrictions on power supply and long delivery times for electrical equipment have caused delays in completion of construction.
What is particularly important is the difficulty of procuring important equipment such as transformers, switches, and generators. As a result, power supply delays of up to 4 years have occurred in some regions. This situation is forcing data center operators to pre-lease 2-4 years ahead, which has an impact on the long-term supply-demand balance of the market.
4 ️ * Expanding regional disparities
Restrictions on electricity supply are widening regional disparities. While emerging markets such as Atlanta, Austin, and San Antonio have achieved rapid growth, regional cities such as northern Indiana, Idaho, Arkansas, and Kansas are attracting the attention of hyperscalers due to the availability of land and electricity.
This trend has led to the decentralization of data center locations, and there is a possibility that it will affect regional economies and power grid structures in the long run. In particular, the expansion of broadband networks developed by electric power cooperatives is a factor that increases the attractiveness of data center locations in rural areas.
5 ️ ESG Technology Trends: Transformations brought about by AI
The rise of AI is bringing about fundamental changes in data center design and operation. Large-scale introduction of GPUs and adoption of liquid cooling technology have enabled high-density computing, which is difficult to handle in conventional data centers.
This technological transformation has the potential to further widen the gap between old and new data centers and accelerate the obsolescence of existing facilities. Investors need to pay attention to data center operators with technological superiority and AI-specialized start-ups.
6 ️ ︎ Investment Trends and Evaluation Difficulties
Investment activities are mainly concentrated on new development, and strong tenant demand, rising rents, and high yields continue to form a market dominated by lenders. However, the shortage of suitable land has intensified bid competition, making it extremely difficult to evaluate development sites.
Of particular importance is the evaluation of power grid infrastructure. Accurate estimation of the amount of electricity that can be reached to the site and when is the key to making investment decisions.
📍 Future prospects and risks
After the second half of 2024, the market needs to focus on the following factors:
1) The acceleration of AI adoption and the associated rapid increase in electricity demand
2) Technological innovation and investment to achieve carbon emissions targets for 2030
3) The potential for mainstream edge computing
4) Correlation between growth in the semiconductor/GPU industry and hyperscaler CAPEX trends
5) Possibility of supplying power to data centers using small modular reactors
What is particularly important is responding to structural changes brought about by the AI boom. There is a possibility that the shift in demand to high-density computing will greatly damage the value of existing data centers. Meanwhile, there are major investment opportunities in new AI-specific data centers.
Also, there is a high possibility that power supply restrictions will accelerate investment in alternative power sources such as renewable energy and new nuclear power generation. This has the potential to create a wide range of investment opportunities beyond the data center industry.
From the latter half of 2024 onwards, attention is being paid to how the market adapts to this structural change. There is a high possibility that tight supply and demand and price upward trends will continue until restrictions on electricity supply are lifted, and careful and agile investment decisions will be required.
The North American data center market in the first half of 2024 entered an unprecedented state of tight supply and demand. According to CBRE's latest report, vacancy rates in key markets have dropped to a record low of 2.8%, and around 80% of the 3.87 GW capacity under construction has already been pre-leased. This situation is mainly due to a rapid increase in demand from AI-related companies in addition to continued demand from cloud providers.
This tight supply and demand is not simply a temporary phenomenon; it suggests structural changes in the industry. Demand for high-density and high-power computing capabilities is rapidly increasing along with the increase in AI workloads, and this is widening the gap between old and new data centers.
2 ️ ESG Price Trends: Moderate Increase Continues
Prices are on an upward trend, reflecting market tightness. The average monthly rent on the 250-500 kW scale increased 7% from the previous year to $174.06/kW/month. What is noteworthy is the 26% price increase in the Atlanta market, which clearly shows the concentration of AI-related demand.
However, this rate of price increase has slowed compared to the previous year, and there is a possibility that the market is searching for a new equilibrium point. Considering that construction costs and equipment costs continue to rise, further price increases are expected in the second half of 2024.
3 ️ CY SUPPLY SIDE ISSUES: POWER INFRASTRUCTURE BOTTLENEKS
The supply side is facing serious challenges in response to the rapid increase in demand. Although the capacity under construction in major markets reached 3,872 MW, a 69% increase from the previous year, restrictions on power supply and long delivery times for electrical equipment have caused delays in completion of construction.
What is particularly important is the difficulty of procuring important equipment such as transformers, switches, and generators. As a result, power supply delays of up to 4 years have occurred in some regions. This situation is forcing data center operators to pre-lease 2-4 years ahead, which has an impact on the long-term supply-demand balance of the market.
4 ️ * Expanding regional disparities
Restrictions on electricity supply are widening regional disparities. While emerging markets such as Atlanta, Austin, and San Antonio have achieved rapid growth, regional cities such as northern Indiana, Idaho, Arkansas, and Kansas are attracting the attention of hyperscalers due to the availability of land and electricity.
This trend has led to the decentralization of data center locations, and there is a possibility that it will affect regional economies and power grid structures in the long run. In particular, the expansion of broadband networks developed by electric power cooperatives is a factor that increases the attractiveness of data center locations in rural areas.
5 ️ ESG Technology Trends: Transformations brought about by AI
The rise of AI is bringing about fundamental changes in data center design and operation. Large-scale introduction of GPUs and adoption of liquid cooling technology have enabled high-density computing, which is difficult to handle in conventional data centers.
This technological transformation has the potential to further widen the gap between old and new data centers and accelerate the obsolescence of existing facilities. Investors need to pay attention to data center operators with technological superiority and AI-specialized start-ups.
6 ️ ︎ Investment Trends and Evaluation Difficulties
Investment activities are mainly concentrated on new development, and strong tenant demand, rising rents, and high yields continue to form a market dominated by lenders. However, the shortage of suitable land has intensified bid competition, making it extremely difficult to evaluate development sites.
Of particular importance is the evaluation of power grid infrastructure. Accurate estimation of the amount of electricity that can be reached to the site and when is the key to making investment decisions.
📍 Future prospects and risks
After the second half of 2024, the market needs to focus on the following factors:
1) The acceleration of AI adoption and the associated rapid increase in electricity demand
2) Technological innovation and investment to achieve carbon emissions targets for 2030
3) The potential for mainstream edge computing
4) Correlation between growth in the semiconductor/GPU industry and hyperscaler CAPEX trends
5) Possibility of supplying power to data centers using small modular reactors
What is particularly important is responding to structural changes brought about by the AI boom. There is a possibility that the shift in demand to high-density computing will greatly damage the value of existing data centers. Meanwhile, there are major investment opportunities in new AI-specific data centers.
Also, there is a high possibility that power supply restrictions will accelerate investment in alternative power sources such as renewable energy and new nuclear power generation. This has the potential to create a wide range of investment opportunities beyond the data center industry.
From the latter half of 2024 onwards, attention is being paid to how the market adapts to this structural change. There is a high possibility that tight supply and demand and price upward trends will continue until restrictions on electricity supply are lifted, and careful and agile investment decisions will be required.
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