Datacenter Vacancies Hit Record Low As Power Shortages Stall Projects

Analysis ​Despite ongoing construction efforts, the North American colocation datacenter market is grappling with record-high occupancy rates. This surge in demand, coupled with delays in new projects due to electricity shortages, has created a challenging environment for both developers and customers.

Property services and investment management firm JLL reported in its 2024 year-end look at North American datacenters that colocation vacancy had reached an all-time low of just 2.6 percent. For companies hoping to claim some of that space, good luck: Vacancies are typically gone within weeks, JLL claimed. 

Very few blocks of leasable space above 5 MW are available, JLL added, and tenants looking for "any sizable amount of datacenter capacity must wait 24 months on average," the report stated. 

For those hoping new datacenter construction projects will free up some space, don't bet on that, either. Despite what JLL said was a "record-setting" 6.6 GW of colocation capacity under construction at the end of 2024, 72 percent of that capacity has been preleased, and the remainder is likely going fast.

"In 2024, colocation absorption in North America totaled 4.4 GW," the report said. "Given that vacancy is near 0 percent, virtually all absorption was preleasing activity."

Lease rates are also skyrocketing, JLL noted.

"For companies approaching the end of a five-year lease, market rents have easily increased 50 percent," the report noted. "Additionally, landlord concessions such as phasing, TIs [tenant improvements] and ROFOs [rights of first offer] are no longer on the table."

Asked whether that was going to drive more businesses out of colocation datacenters and back on-premises, JLL US datacenter research head and report author Andrew Batson told The Register it isn't.

"The only alternative is [self hosting]," Batson told us in an interview. "And we don't see a whole lot of shifting back to that model." 

Batson said that JLL expects between 0 and 3 percent growth in self-hosting in the next year - not much by any metric. 

"There are multiple factors pushing folks into that outsourced model, even if there's a premium to it," Batson added.

In 2024, AI represented about 15 percent of datacenter workloads and by 2030 it could grow to 40 percent

According to JLL, cloud providers, other technology companies, and finance firms are leasing three-quarters of colocation capacity, and their workloads are increasingly - and unsurprisingly dominated by AI projects.

"In 2024, AI represented about 15 percent of datacenter workloads and by 2030 it could grow to 40 percent," JLL predicted. "AI will be a key source of growth for the sector."

But growth relies on electricity, and it's not available

This surge necessitates significantly more electricity to support AI workloads. Unfortunately, that's another big sticking point for datacenter expansion: There just isn't enough energy available to go around. 

"Datacenters require significant amounts of power to operate, and it is becoming increasingly difficult to find grid power to support new developments," JLL said. "In many cases, proposed datacenter projects have to wait four years or more for a grid connection." 

JLL noted that "nearly all suitable sites" for new datacenter projects encounter challenges related to power capacity, scale, or transmission. The North American power grid is operating near full capacity, and even when power is accessible, it's rarely sufficient to meet modern datacenter demands. In addition, regional utilities are increasingly overwhelmed by new power requests.

"People that are new to the [datacenter] sector think, 'I'm just going to buy some land that's next to a powerline and build a datacenter' like they're the first ones that've thought of that," Batson said. "More seasoned professionals know that every piece of dirt has been looked at by at least three firms. There's not a piece of land that hasn't been turned over and given a hard pass for one reason or another." 

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​The rush to acquire viable land for datacenter development has led to increased speculation, with individuals and entities securing power agreements for properties intending to resell them at a profit. This speculative activity contributes to the overwhelming number of power requests utilities face, causing delays for legitimate datacenter projects and extending timelines for power connections.

To combat that, utilities are imposing a number of measures to sift legitimate DC projects from speculative ones, and Batson expects them to have a positive impact on construction timelines. 

In the meantime, however, larger firms are considering on-site power generation for their datacenters. Some have proposed utilizing nuclear power, including small modular reactors (SMRs), though many are awaiting the commercialization and regulatory approval of these emerging technologies. Most, said JLL, are turning to on-site natural gas turbines that are affordable, widely accessible, and reliable. 

"We are seeing a meaningful number of projects shifting in that direction," Batson told us. JLL's official line, we're told, is that SMRs will likely start to be deployed for datacenter operations by 2030, with a scaleup in nuclear powered datacenters over the decade. 

One more major hurdle: Materials

Beyond the power constraints, which Batson said is the primary hurdle facing the datacenter space in 2025, there's also the issue of supply chain constraints. 

"In 2019, before the onset of the pandemic, the average delivery time for datacenter equipment was about 18 weeks or four months," the report said, noting that during the pandemic, the average delivery timeline increased to 14 months. 

"Delivery times have since receded to an average of 28 weeks or six months, which is an improvement but still well above pre-pandemic levels," the report continued. Most equipment, it's worth pointing out, falls well below that average, with cooling towers, UPS, bypass panels and batteries all falling below the average. Other critical parts like chillers, transformers, switchgears and generators, on the other hand, are all taking considerably longer. 

The report noted that there's a significant imbalance in datacenter supply chains, with the US representing 50 percent of the global datacenter market, but Asian countries manufacturing more than 70 percent of datacenter equipment. 

"With the Infrastructure [Investment and Jobs Act], Inflation Reduction Act and CHIPS Act, we have seen some meaningful investment in US manufacturing," Batson told us.

The report mentions ​some of the largest datacenter equipment manufacturers have plans to increase manufacturing capacity in the US, Mexico, and Canada. However, the recent implementation and proposal of tariffs on imports from the US' northern and southern neighbors adds uncertainty to datacenter costs and expansion, potentially impacting the industry's efforts to alleviate current constraints.

The largest contractors and developers have stockpiled critical construction equipment and materials

While these tariffs may exert pressure on datacenter projects in the long term if the economic situation doesn't settle down, Batson suggests that in the short term, these projects are unlikely to experience significant immediate effects.

"The largest contractors and developers have stockpiled critical construction equipment and materials," he explained. "Some of that is tariff related, but given the supply chain issues over the last few years and extreme levels of datacenter construction, they've been stockpiling for reasons other than tariffs."

In other words, "We do not see construction levels slowing or meaningfully changing due to tariffs," Batson added. Any increased costs borne by datacenter developers once their projects are complete, he noted, will ultimately be passed on to tenants, though. That's not a great thing to hear when lease rates are already so high and most companies don't see bringing compute loads in-house as a viable option. Given datacenter companies are phasing out concessions for lessees, it seems they're confident they've locked in a customer base with ever-increasing demands for their services. 

Challenging period unlikely to end soon

Onshoring materials production takes time, SMRs are years off, and grid congestion isn't going to magically vanish - is there a way out of this mess? Short of just waiting and hoping, Batson believes technological advancements will be key to free up datacenter space and drive prices downward.

"We're at a challenging point of high friction," Batson noted. "[But] there will continue to be improvements in advancements in technology."

He said that small modular nuclear reactors, if they materialize on predicted timelines, can ease the grid trouble, while software advancements like DeepSeek, with its reduced computing power needs, may free up some space for other customers. 

"There will be continued improvements in hardware and software, in the power challenges - we'll get there," Batson predicted. "It is just a particularly challenging point in time for the industry." ®