Data Center Vacancy Crashed to 1.9% While Construction Doubled
Min 1: Atlanta Surpassed Northern Virginia For First Time in History
Atlanta led all primary markets with 705.8 megawatts of net absorption in 2024, well above Northern Virginia's 451.7 megawatts per CBRE's year-end report. This marked first time any market surpassed Northern Virginia in annual net absorption. The shift reveals how AI workloads prioritize power availability over traditional connectivity advantages, a dynamic that continues driving 2025 investment decisions.
Overall vacancy in primary markets fell to 1.9% at year-end, creating supply crisis that persists today. Only handful of facilities with 10 megawatts or more slated for 2025 delivery remained unleased, reflecting scarcity of large-scale available inventory. Markets like Charlotte, Northern Louisiana, and Indiana saw significant investment through year-end due to tax incentives, available land, and greater power accessibility according to CBRE tracking.
For investors entering 2025, Atlanta's emergence creates arbitrage opportunity that remains open. Northern Virginia trades at premium valuations based on historical dominance while Atlanta offers similar absorption at 15 to 20% discount to replacement cost. Operators who secured land near Georgia Power substations through 2024 now develop at massive spreads to current market pricing as power constraints intensify.
Min 2: AI Workloads Require 300 to 500 Megawatts Per Facility
Generative AI energy requirements range from 300 to 500 plus megawatts according to JLL's Data Centers 2024 Global Outlook, compared to 12 megawatts for conventional facilities built a decade ago. Nvidia's latest server racks demand up to 120 kilowatts today with projections reaching 600 kilowatts per rack by 2027. Traditional air cooling cannot handle these densities.
Liquid cooling became essential for high-density AI workloads. Data center operators face elevated costs from higher construction expenses, equipment pricing, and persistent shortages in critical materials like generators, chillers, and transformers. A notable pricing disparity persists between new-build data centers and legacy facilities, reflecting the premium placed on modern energy-efficient infrastructure.
Investors capture this spread by developing purpose-built AI facilities rather than acquiring legacy assets. A developer who breaks ground on a 300 megawatt hyperscale data center in Indiana with secured power allocation delivers at $800 to $900 per square foot while legacy facilities trade at $400 to $500 per square foot but cannot support AI workloads without complete infrastructure replacement costing similar amounts.
Min 3: Power Constraints Add 24 to 72 Months to Development Timelines
Construction completion timelines extended by 24 to 72 months due to power supply delays according to CBRE Data Center Solutions analysis. Northern Virginia, the world's largest data center market, fought power shortages to maintain sufficient energy for new and existing facilities. Congestion on the grid caused electric utilities to delay interconnection approvals while infrastructure capacity expanded.
Institutional investors under-allocated to digital infrastructure by 1.5 to 3% compared to other asset classes per CBRE research. Demand for new data center development likely will attract more institutional investment as investors reallocate capital from office sector to real estate alternatives. Power supply in primary markets increased 19.2% year-over-year in H1 2023, leading to 25% increase in new construction activity.
The timeline extension favors early movers. An operator who secured utility commitments and began permitting in 2022 delivers facilities in 2025 capturing peak demand. Competitors starting today face 2028 deliveries into uncertain market conditions. The three-year head start translates directly into hundreds of millions in NOI captured before competition arrives.
Min 4: Small Operators Exploit Secondary Market Power Availability
Major cloud providers increasingly interested in less-expensive rural areas to provide AI training solutions, although many sites require new fiber connectivity. Edge data centers play important roles due to edge computing reducing latency and enabling AI systems to process data closer to end-users or applications.
Markets like Austin-San Antonio and Omaha continue seeing significant interest from investors and developers due to land availability, power infrastructure development, and tax incentives. These secondary markets avoid the power constraints and pricing premiums of primary markets while still offering sufficient connectivity for most workloads.
A small operator who acquires 50 acres near municipal power utilities in Omaha develops 100 megawatt facilities at $600 million total cost while Northern Virginia equivalents require $900 million for same capacity. The 33% cost advantage generates additional 300 basis points of unlevered returns while taking less regulatory and utility approval risk than gateway markets facing grid constraints.
Min 5: REIT Structure Democratizes Data Center Investment Access
Digital Realty Trust and Equinix diversified data center landlords investing in projects across the globe according to Moody's analysis. These REITs allow individual investors to access data center exposure without managing properties themselves or navigating complex utility relationships and construction processes.
Data center REITs outperformed broader REIT indices through 2024 as vacancy compression and rent growth drove NOI expansion. Equinix operates 250 International Business Exchange data centers in 71 metro areas worldwide. Digital Realty maintains similar global footprint with concentration in power-rich markets.
The REIT model scales participation. Individual investors deploy $50,000 into data center REITs and capture 100% of sector returns without construction risk, utility negotiations, or tenant credit analysis. Compare that to direct ownership requiring $200 million minimum equity checks and three-year development timelines before generating any cash flow.
The Takeaway
Data center vacancy crashed to 1.9% in primary markets at year-end 2024 while under-construction pipeline more than doubled to 6,350 megawatts, confirming unprecedented demand driven by AI workloads requiring 300 to 500 megawatts per facility according to CBRE and JLL year-end reports. Atlanta absorbed 705.8 megawatts through 2024, surpassing Northern Virginia's 451.7 megawatts for first time in history as AI priorities shifted from connectivity to raw power availability. Power supply constraints extended construction timelines by 24 to 72 months, creating massive first-mover advantages for operators who secured utility commitments before grid congestion limited new interconnections across primary markets. Average asking rates jumped 12.6% year-over-year to $184.06 per kilowatt as annual investment sales exceeded $6.5 billion, validating institutional recognition that capacity must double by 2028 to meet demand. Investors who deploy capital now into data center development or REITs capture the 2025 inflection point as CBRE forecasts preleasing rates rising to 90% or more with rental rates rivaling record 2011-2012 highs, making this the window to secure remaining power-advantaged sites before competition fully reprices the permanent scarcity premium.
