The exponential growth in data creation and a significant shift toward cloud computing in recent years have driven soaring demand for data centers. Although artificial intelligence (AI) is frequently cited as the primary driver of the surge in demand for these facilities and their construction, JLL’s latest North America Data Center Report reveals a more nuanced reality. The report provides a comprehensive overview of the current market, challenges that the sector faces, and forecasts for the future of the booming data center industry.
Fueling demand
Data centers store, manage, and process data. The largest tenants and occupiers of space in this niche are big-name tech firms such as Amazon, Google, Microsoft, and Meta. Yet these kinds of facilities aren’t just limited to tech. Companies across the spectrum have need for data centers, especially as many organizations have shifted their operations to the cloud.
Annual growth of global internet traffic, much of which will processed through data centers, is projected to more than 20 percent through the end of the decade. Meanwhile, many companies are choosing to lease space in facilities managed and operated by a third-party specialists.
Artificial intelligence, often credited as the top demand driver for data center space, actually makes up only 15 to 20 percent of the global workload, according to Andrew Batson, Head of Data Center Research at JLL.. In fact, the largest companies driving AI growth are not AI firms themselves but often are tech giants such as Google, says Batson, which are increasingly integrating AI into their operations.
With all these factors in play, demand is outpacing supply, and the sector is experiencing record rent growth. “The fundamental drivers of data center demand over the next several years are very strong,” Batson says.
Looking ahead
Data center vacancy fell to a record low of 2.6 percent in 2024, In 2025 alone, nearly $100 billion in data centers will need to be financed nationwide to meet demand. Traditional banks, insurance companies, and private equity are all playing an increasingly significant role in funding these projects.
As the data center real estate sector continues to expand, some notable challenges stand in the way of future growth. Although supply chain issues have eased significantly since the peak of the pandemic, lead times to secure construction materials and data center equipment are still 50 percent above pre-pandemic levels. Reshoring manufacturing facilities will help, but not until 2026–2027, when new manufacturing facilities are operational.
The primary challenge for the industry is power. Data center facilities require a significant amount of energy to function properly, and with a power grid that’s already stretched to its limit in the United States, that often means developers must add more capacity to the system. Anyone looking to build new projects is being met with average wait times of four years and steep application fees that seriously stretch project timelines.
At the same time, the large tech firms that make up the largest share of data center occupiers are also committed to rigorous sustainability goals. This will mean moving away from fossil fuels and looking at alternate energy sources such as solar, wind, and—perhaps most promisingly—nuclear.
Despite these ongoing challenges, data centers are still among the most popular sectors for investors, and the federal government has directed more investment toward helping the industry deal with energy hurdles. “There is a strong storyline for investing in data centers,” Batson says.
