Data centers are experiencing a shortage of colocation space and rising prices due to the increasing demand fueled by artificial intelligence workloads and continued cloud adoption. This is the result of large cloud service providers and enterprises in various industries competing for available data center space. In primary markets, colocation providers have increased pricing by up to 20% to 30% year-over-year, while secondary markets with excess capacity are supporting the overflow demands. The imbalance between supply and demand has never been this severe, leading to limited options for organizations that have not planned ahead. It is advised that organizations start planning now if they will need data center capacity from colocation providers in the future.
Data center development timelines have also been lengthened to three to five years or more due to supply chain issues for technology, lack of available land, and power limitations. The adoption of artificial intelligence is expected to further accelerate data center demand as cloud providers offer GPU-as-a-service offerings, AI companies introduce new services, and enterprises rush to adopt the technology. To support AI requirements, data center operators need to deploy powerful, high-density server clusters, driving densities to 50kW to 100kW per rack in some cases. Edge data centers are also in demand as hyperscalers add edge network nodes to improve performance and reduce latency for AI applications.
Despite higher interest rates, the data center market continues to attract lenders and investors. Record-setting merger and acquisition activity persists, and a variety of lenders, including life insurance companies, banks, debt funds, and the CMBS/SASB market, are involved in capital markets activity related to data centers. In conclusion, the explosive demand for data centers driven by artificial intelligence and cloud adoption is causing a shortage of colocation space and rising prices, leading to a need for careful planning and consideration of options for organizations in need of data center capacity.
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