The news is in: NVIDIA is providing critical chips to help build data centers in Saudi Arabia.
Saudi Arabia, in its mission to establish itself as a regional technology hub, has now taken a significant step forward with the announcement that Humain, the AI subsidiary of the Public Investment Fund, will partner with Nvidia to develop data centres with up to 500 megawatts (MW) of capacity over a five-year period.
Artificial intelligence is fueling an unprecedented surge in data center expansion. A recent Moody's Ratings report shed light on the explosive global growth of data centers. Global data center capacity is forecasted to double over the next five years, and hyperscalers like Google and Amazon are estimated to increase annual IT spending by $48 billion by the end of this year.
The burst of data center growth isn’t unexpected. GPU processing of AI workloads requires much higher power consumption than traditional processors. The size of new AI models is also growing, and adoption rates of AI are high, driving the surge in data center infrastructure spending.
Hyperscalers like Amazon, Google, Microsoft, and Meta are rapidly building and leasing massive new data center capacity to meet expected future demand, focusing on space and power. Simply put, there’s a voracious demand for data center infrastructure, and there’s no sign of it slowing down.
A massive need for energy
The record-breaking demand for data centers makes it the commercial real estate market’s most attractive asset in a time of broader industry struggles.
JLL’s recent Midyear 2024 U.S. Data Center Report reveals that national vacancy is at a record low of 3%, and occupancy has skyrocketed at a 30% compound annual growth rate since 2020. Asking rents have increased between 13% and 37% year-over-year, depending on the lease size.
“There appears to be no ceiling for how high this data center demand is going to reach,” said Andy Cvengros, Managing Director and co-lead of U.S. Data Center Markets, JLL. “This level of demand is currently unmatched by any other property type, and I cannot stress enough the importance of planning and being proactive about your IT needs years in advance.”
The only thing that may slow data center growth is the assets’ enormous energy appetite. Data center power loads are steadily increasing, with new projects regularly requiring 100 MW and some new developments even eclipsing 1 GW.
Data center power demand has been growing at a 21% CAGR, but the sector only accounted for about 3% of total U.S. energy usage last year. If trendlines hold, that percentage will surpass 11% within the next decade.
The U.S. power grid isn’t in danger of running out of capacity. Still, investments will need to be made to expand the existing substations and add new ones in crucial areas for data center development.
The power procurement process must be significantly improved administratively and in the field. Egregious power load requests and significant transformer delays could imperil future data center growth.
Establishing a new data center's power connection to the grid can take three to five years. As a temporary measure, developers are resorting to interim energy solutions like fuel cells or supplemental natural gas turbines to kickstart projects with shorter timeframes.
Sometimes, hyperscalers like Google, Meta, and Amazon have acquired their own power plants to secure long-term and reliable power sources.
Northern Virginia’s data center hub
As new data center developments increase across the U.S., Northern Virginia stands out as the unrivaled global hub. Just beyond the western suburbs of Washington, D.C., Ashburn, Virginia, is the epicenter of “Data Center Alley.” Here, a collection of nearly 300 data centers scattered across Loudon, Fairfax, and Prince William counties handle more than 70% of online traffic, according to Lightyear.
The surge in data centers brings significant benefits to Northern Virginia. According to a Northern Virginia Technology Council report, these digital powerhouses generated $1 billion in local tax revenue in 2021. Loudoun County, in particular, reaps the benefits with nearly $600 million in annual tax revenue from data centers—sufficient to fund all its operational expenses.
Northern Virginia is not the capital of the data center world by accident. Its proximity to the nation’s capital has much to do with it.
In the 1960s, a federal government-funded project forged an early version of the Internet, connecting the Department of Defense with leading research universities and institutions.
This pioneering network sparked the birth of digital communication and ignited a burgeoning need for data storage. These initial strides in connectivity set the stage for the vast, interconnected web that would eventually evolve into the Internet we know today.
Fast-forward several decades, and Virginia now grapples with the challenges of an exploding data center industry—a scenario playing out across the U.S.
The sector’s ravenous hunger for electricity is outstripping the available supply. Dominion Energy, which powers much of Virginia, finds itself in a tight spot, with data centers consuming 20% of its electricity. In recent years alone, Dominion has added 70 new data centers to its grid, enough to power 650,000 homes.
A year ago, Dominion conceded that its transmission infrastructure struggled to keep up with this relentless growth. The utility sounded the alarm, indicating it might soon fall short of meeting the data centers' soaring power needs.
To address this, plans are underway for substation expansions and new transmission lines following a temporary halt in new data center connections.
Not in my backyard
The scarcity of power and land has only heightened the allure of data centers as prime real estate assets. Yet, the aggressive expansion of data center hubs nationwide is encountering growing pushback.
Residents are rallying against having these massive facilities in their neighborhoods, while public officials raise concerns about their sustainability. As the demand for data centers continues to surge, balancing expansion with local opposition and environmental impact is becoming a challenge.
NIMBYs (Not In My Backyard) is a common issue real estate developers face, and it’s happening with data centers. A large amount of water used to cool data centers is generating opposition, for instance, to new facilities in expanding hubs like Phoenix, a region where local water resources soon won’t be adequate to support the needs of one of the country’s fastest-growing cities.
In addition to concerns about water usage, the constant hum of cooling systems and generators running around the clock fuels resistance to data centers. The intrusion of these facilities into once-pristine rural areas is also sparking strong opposition.
As data centers push further into new territories, the outcry over their environmental and noise impacts is growing louder, creating a battleground between progress and preservation.
Greater Phoenix is a good case study for data center opposition. New data center facilities have significantly increased in the Phoenix suburbs in recent years, but officials are halting some developments.
Officials in nearby Chandler, Arizona, recently considered a moratorium on new data centers. The Chandler officials say the facilities aren’t sustainable, don’t generate a significant number of new jobs, and make too much noise.
Opposition to data center growth has become a prominent concern in the industry, especially in areas already home to many of these facilities. Understanding and addressing these concerns will be a top priority if the data center industry wants to keep expanding.
Will the growth ever slow down?
The ongoing growth of data centers faces challenges like land availability, resident opposition, and limited power supply. However, according to reports from commercial real estate firms JLL and CBRE, the growth of these prized assets is not expected to slow over the next 12 months.
The lack of land availability has increased development in secondary markets outside of major metropolitan areas. In the data center capital of the world - Northern Virginia - availability for data center space was running at an astoundingly low 0.2% in January 2024, according to Newmark.
Data center developments are booming across the U.S. Salt Lake City is experiencing the fastest acceleration among markets and is set to double its existing capacity.
Atlanta’s data center construction pipeline is full, and new development territories are opening in areas like Columbus, Ohio; Minneapolis; Reno, Nevada; and Indiana. Foreign investors are also expanding into Latin and South American markets in hot pursuit of land and power.
“Data center developments will expand to wherever there is enough power and available land,” said Karl Beets, a senior manager at JLL.
Cloud security company Upwind published a report last fall on the top 5 growing data center hubs, noting:
While Northern Virginia will continue to dominate the data center market, more affordable regions such as Phoenix and Dallas-Fort Worth are becoming prime locations for new developments. In fact, once the epicenter of tech innovation, Silicon Valley is losing ground as costs rise and power constraints hinder further expansion.
Much of the increased demand is attributed to AI and Large Language Models like ChatGPT, which are growing in popularity and require enormous amounts of power. Governments and corporations increasingly use AI for customer service chatbots, data analytics, and operations management. All these services significantly increase the need for power and data center infrastructure.
After a decade of tepid growth, data centers are booming. According to CBRE, the average asking rental rate for data centers nationally declined by 16.9% between 2013 and 2021.
By comparison, in 2023, the average asking rental rate for a 250-500kW requirement increased by 18.6% across primary wholesale colocation markets. The year before, prices rose 14.5%.
CBRE notes that the U.S. data center market saw the largest pricing increase of all commercial real estate assets last year.
Data centers, as real estate assets, will likely return to earth in time. Much like warehouses, logistics, and life sciences real estate at the height of the pandemic, investors dramatically pile on to hot assets, which sometimes leads to over-development and a period of slower growth later on.
For now, data centers are a darling of the commercial real estate industry, and future growth predictions look excellent. Resident opposition, sustainability concerns, limited land availability, and a few other areas could dampen development, but the future looks bright for data center facilities.
Last Updated on May 16, 2025 by Joe
