Data center vacancy rates approaching zero raises question about potential lowering of colocation costs, according to JLL.
Data centers, considered critical infrastructure, are experiencing a surge in demand across North America and Europe, driven by the rapid growth of artificial intelligence (AI) and machine learning (ML) workloads, enterprise digital transformation, and sustainability goals.
In North America, the demand for high-performance, GPU-dense infrastructure is pushing hyperscale cloud providers like AWS, Microsoft, Google, Meta, and Oracle to expand their data center footprints aggressively, particularly in metro markets such as Northern Virginia, Chicago, Dallas, Austin, Atlanta, where vacancy rates have plummeted to a record low of 2.3 percent.
The European data center market is also witnessing growth, with major tech hubs expanding beyond traditional prime markets like Amsterdam, London, and Frankfurt towards Nordics and growing cities like Barcelona, Madrid, and Milan. This expansion is driven by regional digital economy growth and government policies.
However, the surge in demand for data center space is not without challenges. Infrastructure and construction bottlenecks are making expansion challenging in core urban areas, affecting market dynamics and pushing some development to secondary markets or regions with favorable conditions. In North America, much of the construction pipeline is already pre-leased, and the average wait time for a grid connection is now four years. Similarly, in Europe, construction of new data center facilities has been hampered by constraints on available power and land.
The data center sector contributes substantially to regional economic growth by attracting investment, creating construction and operational jobs, and supporting digital economies. KPMG forecasts European data center revenues growing 10% annually through 2032, reflecting strong business demand and economic benefits. In North America, the data center market is forecasted to reach about USD 138 billion in 2025, expanding at a 22% compound annual growth rate (CAGR) through 2030.
Despite the economic benefits, the surge in demand for data center space raises national security concerns. Limited vacancy and high preleasing rates constrain the ability to scale capacity quickly, which can undermine long-term national security by delaying expansion needed to support digital sovereignty and essential services. The concentration of data center assets in certain metropolitan hubs creates vulnerabilities to disruptions, including natural disasters or cyberattacks, raising concerns about the resilience of digital infrastructure.
Governments and private sectors are increasingly aware of these risks, driving investments not only in capacity but also in security, energy independence, and regulatory compliance to reinforce critical infrastructure. North American utilities are now demanding hard deposits earlier in power procurement, and JLL forecasts that pre-leasing activity will continue to hold the vacancy rate down from now through 2027.
In summary, AI and cloud-driven compute demands, enterprise digital transformation, and sustainability goals are the primary drivers for data center space demand in North America and Europe, with significant positive impacts on economic growth. However, capacity constraints and infrastructural bottlenecks raise national security concerns, motivating strategic investments and innovation in data center design and location planning to mitigate these risks.
[1] Data Center Dynamics (2023). North American Datacenter Market Report. [Online] Available: https://www.datacenterdynamics.com/content-hub/north-american-datacenter-market-report-2023/
[2] Data Economy (2023). European Data Center Market Report. [Online] Available: https://www.data-economy.com/2023/03/01/european-datacenter-market-report/
[3] McKinsey & Company (2022). Assessing the national security risks of data centers. [Online] Available: https://www.mckinsey.com/business-functions/risk/our-insights/assessing-the-national-security-risks-of-data-centers
[4] Greenpeace (2022). Cool IT: How Hyperscale Cloud Providers Can Reduce Their Climate Impact. [Online] Available: https://www.greenpeace.org/usa/wp-content/uploads/2022/04/Greenpeace-Cool-IT-Report-2022.pdf
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