North America Data Center Report

H1 2023: Record demand meets limited supply

August 24, 2023
  • Kari Beets
Supply Imbalance: market conditions will remain tight through 2024

The first half of 2023 witnessed robust growth in the data center market; however, most major and secondary markets are struggling with a supply and demand imbalance, leading to a shortage of colocation space and rising pricing. Secondary markets are expected to support the overflow from the constrained primary markets. Most of the supply expected to be delivered in the latter half of 2023 and 2024 has been preleased or is under exclusivity, resulting in limited options for users.

Artificial Intelligence: new technologies will drive greater data center adoption

Major cloud service providers are growing rapidly to support new AI requirements and the need for more computing power, making it challenging to find space and power for smaller requirements in many markets. This has led to a significant surge in leasing in the second quarter of 2023, with a mounting demand for capacity to meet higher density data center requirements for AI development. As AI requirements grow, data center operators need to adapt their infrastructure to accommodate high power density server clusters.

Artificial Intelligence models are requiring more data points for training

Edge: reducing latency drives growth outside of core markets

To reduce latency, hyperscalers and cloud companies are building small data centers close to population centers outside of core markets. Generative AI and growth of connected devices will continue to drive demand for Edge data center requirements.

Capital Markets: investor demand will remain elevated

Despite the rise in interest rates in the first half of 2023, data center lender and investor demand remained strong. The data center sector witnessed record-setting M&A activity and higher EBITDA multiples compared to asset-level deals. While interest rate volatility and regional bank challenges are observed, the data center market continues to attract a variety of lenders including life companies, banks, debt funds, and CMBS/SASB.

Looking ahead: The data center market is experiencing strong growth driven by hyperscalers, AI requirements, and the expansion of edge computing. Supply and demand imbalances have resulted in increased preleasing and extended timelines, requiring users to be in the market for capacity well in advance of their preferred go-live date. While AI demands mean increased demand for operators, they must adapt infrastructure to accommodate these needs and innovate for cooling and efficiency to meet sustainability goals. Despite interest rate volatility, investor demand remains high, will continue to continue to attract diverse financing to fuel growth.

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