In a year where data centers faced their toughest power challenges yet, the industry didn’t just survive – it thrived. JLL’s new North America Data Center Year-End 2024 Report reveals a sector charging full speed ahead, with metro Phoenix remaining a top choice based on its location, infrastructure and cost. The market’s current inventory of 804 MW is also about to skyrocket, with 1,004 MW under construction and another 3,684 MW planned.
Record-breaking year: Vacancy plummets as data center demand skyrockets
On a national level, the JLL report details unprecedented demand levels, with colocation vacancy in North America declining to a new all-time low of 2.6% despite several years of record construction levels. U.S. absorption totaled 4.4 GW in 2024 – a quadruple increase since 2020 – propelled by cloud providers, technology companies and finance sectors. In 2024, artificial intelligence (AI) represented about 15% of the nation’s data center workloads, and by 2030, it could grow to 40%. AI will be a key source of growth for the sector.
88% of absorption in 2024 was in primary U.S. markets. Phoenix ranks third on that list at 166 MW absorbed, with Northern Virginia taking the top spot with 847 MW of absorption in H2, capturing 50% of all demand in North America. Chicago (308 MW), Dallas-Fort Worth (123 MW) and Toronto (55 MW) round out the top five markets for absorption in the second half of the year.
“The metro Phoenix data center absorption rate is down significantly, because we have no supply available,” said Mark Bauer, Executive Managing Director for JLL. “Current construction will help alleviate the pressure generated by our 2% vacancy rate, and planned construction will go the next step, more than tripling our current local data center inventory. Even if a significant portion of the space under construction is preleased, it creates critical new options and opportunity.”
Across the U.S., construction activity remained robust in 2024, with more than 2.6 GW of colocation capacity completed and nearly all of that space absorbed at delivery. At the end of 2024, a record-setting 6.6 GW of colocation capacity was under construction, with 78% of the product under construction in primary markets. The pipeline of planned projects increased to 22.9 GW, confirming strong demand in established markets where power can be secured. Most markets have doubled or tripled in size since 2020, with Austin/San Antonio and Atlanta leading the U.S. in market growth followed by Northern Virginia, the Pacific-Northwest and Phoenix.
Watt’s the holdup? Power and supply constraints reshape data center landscape
The North American power grid is taxed, resulting in challenges around capacity, scale and transmission. Data center projects are requiring more power each year, as new data centers are now commonly 100 MW, with some projects requesting up to 1 GW of power. Even among the regional utilities with power availability, few have capacity available at the scale required to support modern data centers.
“The standard for power delivery in the industry is now at between three and five years, but companies looking at Phoenix are committing to that,” said Bauer. “We expect demand to only continue to rise, keeping Phoenix a top choice for users but also requiring developers and users to build longer lead times into their strategic plans”
While grid power is the most affordable, reliable and accessible source of electricity in North America, green-energy solutions like solar, wind, fuel cells, hydrogen, nuclear and geothermal are in various stages of development for data center usage. Some show promise as a primary power source, others could play a role as supplemental green energy.
With lead times still 50% above pre-pandemic levels, data center equipment supply chains continue to be challenged but are improving, with most equipment available for delivery in six months or less. Generators, switchgears and transformers take an average of 11 months, depending on manufacturer and model. Reshoring of data center equipment manufacturing is expected to help reduce lead times, but not until 2026-2027 since most of these new manufacturing facilities are currently under construction. Data center operators must develop agile approaches and robust risk mitigation plans.
Cashing in on the cloud: Investors target data center assets
The data center sector remains among the most favored real estate asset classes for investors, benefiting from increased diversity in lender engagement. The market saw strong appetite throughout 2024 across various deal profiles, from core stabilized assets to value-add opportunities.
Significant future investment appetite is expected from sovereign funds and separate accounts seeking large-scale investments. The single-asset borrower (SASB) and asset-backed security (ABS) markets provided substantial liquidity, with data center ABS volume increasing 49% year-over-year to $9.0 billion in 2024.
“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 Phoenix, this coincides with growing funding requirements, which in turn elevates the scale and complexity of the built environment. According to Bauer, the typical metro Phoenix data center has grown from a few hundred MW campuses to 400 MW to 500 MW developments, fueled in Arizona particularly by cloud services and AI workload growth.
“This will make it increasingly challenging for sub-10 MW enterprise customers seeking space,” said Bauer. “Leasing an entire building to a single hyperscale cloud user is too streamlined and profitable for most wholesale operators to pass up.”
Bauer is seeing the emergence of some smaller developments hit the drawing board. If they come to fruition, they would require less land and power, potentially meeting the needs of a niche market needing sub-150 MW space. In the meantime, data center entities continue to pursue Phoenix, willing to wait 12 or more months for sites that are zoned and entitled, with power procurement agreements executed.
Your data has never been more critical, and neither has your data center partner. From site selection and land acquisition to upgrades and facilities and energy management, JLL’s team of dedicated technical experts are trained and experienced in every phase of the data center lifecycle to help you scale, optimize and maintain efficiencies in your data center strategy. Our solutions enable your business to make higher-quality decisions and enter new markets with reduced friction through local market expertise, business intelligence, proprietary data and cutting-edge technology tools.
