Data Center Investments Surge, Colocation Vacancy Rates at All-Time Low 

Data center investments have become the second most coveted segment in real estate portfolios, trailing only industrial assets, and are increasingly attracting both conventional real estate managers and credit investors, according to JLL’s in-depth sector analysis,  

JLL’s North America Data Center Report reveals that colocation vacancy rates in data centers dropped to an all-time low of 2.6% in 2024, signaling a doubling of absorption levels in just two years—reaching 4.4 gigawatts, a fourfold jump since 2020. Despite hurdles like power utility constraints and competition to establish facilities in emerging markets, JLL forecasts continued expansion in the sector, fueled by rising demand from cloud providers, tech firms, and the finance industry. 

Andy Cvengros, executive managing director and co-lead of U.S. Data Center Markets at JLL, described the sector as a “new gold rush,” with developers, tenants, and investors fiercely vying for scarce resources like power, land, and equipment. 

“The data center sector remains one of the most favored real estate asset classes due to insatiable tenant demand, limited supply and rising rents,” said Cvengros. “However, power availability has become the defining constraint on growth, pushing development into new markets in search of capacity.” He added that more power generation is needed to bridge the gap between supply and demand. 

The JLL team discovered that leasing is fueling much of the demand. Currently, nearly 6.5 gigawatts of power generation are under construction, with 72% already preleased. Among colocation opportunities, the Austin/San Antonio and Atlanta metro areas have seen the sharpest growth, trailed by Northern Virginia and the Pacific Northwest. Across the board, most markets have doubled or tripled in size since 2020. 

“Data center rents continue to surge, with a 12% year-over-year increase in 2024 and an 11% CAGR since 2020, as landlords maintain strong negotiating leverage in a market with near-zero vacancy,” said Andrew Batson, head of U.S. Data Center Research for JLL. “Tenants renewing five-year leases are experiencing significant sticker shock, facing up to 50% rent increases, and landlord concessions are becoming increasingly rare in this tight market.”  

Debt and real estate funds have surged in popularity as investors look to capitalize on the booming growth and demand in the data center sector. This momentum isn’t just local—it’s playing out on a global scale. 

Brookfield Asset Management has launched an ambitious €20 billion ($20.6 billion) infrastructure investment initiative, slated for completion by 2030, with a major focus on expanding data center capacity. This includes up to €15 billion ($15.5 billion) earmarked for development led by its Paris-based portfolio company, Data4. The plan aims to triple Data4’s existing goal of 500 MW of data center capacity across France by 2030, positioning the country as Data4’s biggest market in Europe. 

CPP Investments has teamed up once again with Pacific Asset Management Company, launching a KRW 1 trillion ($687 million) joint venture to build carrier-neutral hyperscale data centers in South Korea. With CPP Investments owning a commanding 95% stake, the partnership is off to a strong start, having already allocated KRW 276 billion ($190 million) to kick off its initial seed project. 

The fund has partnered with GIC and digital infrastructure leader Equinix in a joint venture to collectively secure over $15 billion in capital. This collaboration aims to build cutting-edge Equinix xScale data centers across the U.S. 

IPI Partners III is actively gathering institutional capital, aiming to amass $4 billion to fuel its strategy of investing in developable land tailored to the demands of hyperscalers, targeting regions with robust power availability and strong connectivity. 

Recent fundraising efforts have brought in significant capital, with AREP Strategic Opportunity Fund IV securing $309 million and Harrison Street’s HS Digital Fund pulling in $600 million. 

JLL forecasts a robust surge in investment interest from sovereign wealth funds and separate accounts targeting large-scale opportunities in the coming years. The single-asset single-borrower (SASB) and asset-backed security (ABS) markets have delivered significant liquidity, with data center ABS volume jumping 49% year-over-year to reach $9.0 billion in 2024, underscoring the sector’s growing momentum. 

“There’s robust demand from both cash flow buyers looking to add stabilized assets and operators seeking value-add opportunities,” said Carl Beardsley, senior managing director, Data Center Leader, JLL Capital Markets. “We expect investment activity to increase in 2025, particularly for hyperscale assets as more development projects reach completion.”  

In 2024, AI accounted for roughly 15% of data center workloads, but JLL projects that by 2030, this could skyrocket to 40% in North America, highlighting the sector’s pivotal role in supporting AI-driven demand. 

AI and its escalating computing power demands are fueling rapid growth in the data center sector, contributing to higher leasing costs and a surge in construction activity. However, two major hurdles are tempering this expansion: limited power availability and persistent supply chain disruptions. 

JLL reports that the pipeline of planned data center projects has swelled to 22.9 gigawatts, a clear sign of robust demand in established markets where power availability is assured. The firm notes that these projects are demanding increasingly higher power levels with each passing year. 

Modern data centers are now typically designed for 100 megawatts, with some ambitious projects seeking up to 1 gigawatt of power, experts say. Even among regional utilities with available capacity, few can meet the massive scale demanded by today’s facilities. Upgrading the grid to handle these needs is a slow process, measured in years rather than months, adding further complexity to the sector’s growth. 

“Channeling immense electrical capacity to a single project requires significant planning and coordination, and, with grid connection wait times averaging four years and potentially costing tens of millions of dollars in lost profits, data center operators are increasingly turning to alternative energy solutions,” said Matt Landek, division president, U.S. Data Center Work Dynamics, who also leads JLL’s Data Center Project Development and Services.   

Landek noted that natural gas turbines have become a favored interim solution, prized for their cost-effectiveness, availability, and quick setup. Some projects are exploring permanent on-site natural gas turbines to achieve off-grid independence, even though they come with a higher price tag and the need to monitor emissions. 

With construction lead times still running 50% above pre-pandemic norms, renewable energy alternatives like solar, wind, fuel cells, hydrogen, nuclear, and geothermal are gaining traction. JLL highlights that while some of these options hold potential as primary power sources, their costs remain higher than prevailing grid rates. 

Supply chain bottlenecks persist, with most data center equipment available within six months or less, according to JLL. However, critical components like generators, switchgears, and transformers face an average delivery time of 11 months. The firm anticipates that reshoring efforts to boost domestic manufacturing of this equipment won’t ramp up until 2026 or 2027, as those production facilities are still being built.