Data center market in the US nearing capacity
Despite power constraints, supply chain issues, and rising costs, the demand for data center infrastructure remains strong.
The North American data center market is almost at full capacity, which means that businesses looking for colocation services may not find the space they need at their preferred data center or may have to pay a premium for it.
Market research firm datacenterHawk, which assists companies in finding colocation and cloud service providers, reports that the North American data center market is experiencing unprecedented demand, although growth has slowed somewhat due to economic challenges.
The high demand and limited inventory have led to a vacancy rate of only 2.88% in major North American markets and 5% in secondary markets, according to datacenterHawk’s 1Q 2023 Data Center Market Recap. There is virtually no empty space in data centers to lease or sell to customers, particularly in the largest markets like Northern Virginia and Washington state. This lack of availability forces co-location customers to turn to other providers that may not be their first choice.
Markets that once had 5 to 10 providers who could handle a 1-4 megawatt requirement now only have two to four providers. As a result, prices have risen by 5% to 20%, depending on the market. Furthermore, newly developed capacity is often fully leased by hyperscale companies, leaving few new options for enterprise users.
Due to long delivery timelines and procurement delays, demand is still outpacing providers’ ability to deliver new capacity. Therefore, it is unlikely that vacancy rates will increase anytime soon.
David Liggitt, the founder of datacenterHawk, attributes the problem to the high demand from hyperscale companies, which account for more than 80% of all leasing in North America. They were highly active in 2021 and 2022, taking up most of the available supply.
Liggitt expects these conditions to persist for the next two to three years because data center operators cannot build facilities quickly enough. However, the economy may inadvertently soften the blow. Due to high interest rates and budget cuts, many enterprise users are currently adopting a conservative approach to their IT infrastructure by buying less.
Latin America an emerging data center market The report highlights that growth in popular data center markets like Virginia and California is being hindered by the lack of power and land to expand. Therefore, data center operators are seeking out-of-the-way locations in smaller states and cities.
This also includes outside of the United States. According to datacenterHawk, the Latin American data center industry is experiencing a surge in growth due to strong industry tailwinds such as technology adoption and data center investment.
Post-pandemic, Latin America is expected to have the highest global growth in technology adoption, driving demand for colocation in key Latin American markets such as Mexico, Brazil, Chile, and Colombia over the next decade.
DatacenterHawk believes the Latin American market will catch up with the data center growth seen in the rest of the world, and the region is likely to experience a larger percentage growth curve until sufficient digital infrastructure is in place to support the demand. This implies an increase in the trend of “nearshoring” in Mexico, where foreign investment is increasing to build data centers that will serve the neighboring regions.