Global Data Center Market Poised for Explosive Growth: $293B in Capex by ‘26
The global data center market is on the cusp of a transformative era, with Knight Frank forecasting a 46% increase in capacity by 2027, equivalent to an additional 20,828 megawatts (MW) of power. This surge, potentially ballooning by 177% by 2030, is fueled by an unprecedented $293 billion in capital expenditure over the forecast period.
The driving forces? Soaring demand for digital infrastructure to support artificial intelligence (AI), cloud computing, and enterprise digital transformation. As the backbone of the digital economy, data centers are becoming critical assets, attracting massive investment and reshaping real estate markets worldwide.
After a 36% decline in data center transaction volumes in 2023, triggered by global interest rate hikes, the market roared back in 2024. Transaction volumes skyrocketed by 118% to $31.3 billion, spanning single-asset deals, portfolio acquisitions, redevelopment projects, and development site sales.
The average transaction value in 2024 reached $75 million, a 15% increase from 2023 and a 44% jump from the pre-COVID 2019 average. Since 2019, the compound annual growth rate (CAGR) for transaction values has been a robust 7.5%, reflecting the sector’s growing appeal to investors seeking stable, high-growth opportunities.
The Real Estate Investment Opportunity
Data centers are increasingly viewed as a hybrid asset class—part real estate, part infrastructure—offering stable, long-term yields. Institutional investors, from pension funds to REITs, are pouring capital into development sites and operational facilities. The competition for prime locations is intensifying, particularly in power-constrained markets where securing grid access is a dealbreaker.
Stephen Beard, global head of data centers at Knight Frank highlights the real estate angle: “Real estate investors and developers are positioning themselves to capitalize on this demand, with an emphasis on acquiring strategically located land and securing long-term power agreements.”
“As global capital races to capture the next wave of digital infrastructure growth, the competition for prime development sites, particularly in power-constrained locations, will intensify. The task ahead is to build infrastructure that not only supports innovation but also safeguards sustainability, security and equity.”
Regional Breakdown: Where the Growth Is Happening
The data center boom is global, but its intensity varies by region, each shaped by unique drivers and constraints:
The undisputed leader, North America anticipates 11,638 MW of new capacity—a 54% growth rate—backed by $164 billion in investment. The region’s dominance stems from its hyperscale giants (e.g., AWS, Microsoft, Google), rising enterprise colocation demand, and expansion into secondary markets like Phoenix and Dallas. The U.S. benefits from abundant capital, advanced connectivity, and a mature ecosystem, though power availability remains a bottleneck in some hubs.
Europe, Middle East & Africa (EMEA) is set for 4,529 MW of new capacity (44% growth), requiring $63.7 billion. Power constraints in traditional hubs like Frankfurt and London are pushing development to secondary markets such as Milan and Madrid. Sustainability regulations and high energy costs are also shaping investment, with a focus on renewable-powered facilities.
Asia Pacific is expected to add 4,174 MW (32% growth) with $58.7 billion in investment. Established hubs like Tokyo coexist with emerging hotspots like Johor, Malaysia, where hyperscalers are drawn by lower costs and proximity to connectivity hubs like Singapore.
Spotlight on Key Markets
Several cities stand out as epicenters of growth, each with distinct dynamics: Ashburn, VA: The world’s largest data center hub will grow by 2,428 MW (58%), backed by $34.1 billion targeting this market. Despite power availability challenges, Northern Virginia remains the principal destination for hyperscalers and colocation providers.
Phoenix, AZ: A rising star, Phoenix is projected to surge by 126% (1,109 MW), attracting $15.59 billion. Its appeal lies in abundant land, a business-friendly climate, and robust connectivity, making it a magnet for hyperscale and enterprise players.
London: Despite power and land shortages, London remains Europe’s premier hub, with 480 MW (36% growth) and $6.8 billion in investment. Development is shifting to outer boroughs and secondary UK cities like Manchester to bypass constraints.
Milan: Europe’s breakout market, Milan expects 310 MW (168% growth) with $4.35 billion. Its rise reflects a broader trend of investment flowing to less saturated hubs with available power and land.
Tokyo: A cornerstone of Asia Pacific growth, Tokyo anticipates 295 MW (25%) and $4.1 billion. Japan’s stable grid and cloud demand drive its appeal, though high land costs pose challenges.
Johor, Malaysia: An emerging hotspot, Johor projects 335 MW (85% growth) with $4.73 billion. Its proximity to Singapore, coupled with government incentives, positions it as a cost-effective alternative for hyperscalers.
Strategic Drivers and Challenges
Beard captures the sector’s dynamism: “The global data center industry is undergoing rapid transformation, with hyperscaler and colocation providers prioritizing markets that offer access to power, robust connectivity, and a favorable regulatory environment. We’re increasingly seeing sustainability considerations shaping investment strategies, with an increasing focus on renewable-energy adoption and energy-efficient design.”
Several factors underpin this growth, including AI and Cloud Demand: The exponential rise of AI workloads, requiring vast computational power, is driving hyperscalers to build larger, more specialized facilities. Cloud adoption by enterprises further fuels colocation demand.
Digital Transformation: Businesses across sectors are digitizing operations, necessitating scalable data storage and processing capabilities.
Sustainability Push: Investors and operators are prioritizing renewable energy and energy-efficient designs to meet regulatory and ESG (Environmental, Social, Governance) goals. For example, facilities powered by solar or wind are increasingly common in Europe and North America.
Yet, challenges loom, including power constraints. Markets like Ashburn and London face grid limitations, forcing operators to innovate with microgrids or edge computing. In addition, there are regulatory hurdles as zoning laws, environmental permits, and data sovereignty rules vary widely, complicating development. There is also competition for land as prime sites near urban centers with low-latency connectivity are scarce, driving up costs and sparking bidding wars.
