Digital infrastructure serves as the foundation for continuous innovations which support the rapidly growing volumes of data generated by modern technologies. Over the past decade, the industry has garnered significant attention and investment, driven by digital transformation and further accelerated by the increasing reliance on digital services and cloud computing solutions.
Recent trends, particularly AI, are expected to push demand for data centers to new heights, with the market expected to more than double by 2030. While presenting opportunities for growth and innovation, these trends amplify longstanding challenges in the industry such as power constraints and limited real estate capacity.
Power and land resources are indispensable for data centers characterized by energy-intensive operations and extensive real estate requirements. These facilities consume approximately 3 percent of the world’s electricity, a figure projected to double by 2026. Vacancy rates worldwide continue to decline, with major markets like Singapore and Northern Virginia experiencing record lows of under 1%. As demand continues to rise, data center markets globally face strain on their electrical grids and increasingly intersect with local real estate markets, influencing real estate pricing, utility capacity, and government development priorities.
Additionally, the growing popularity of AI and hyperscale data centers generates demand for more power and space than traditional data centers. Hyperscale data centers, known for their massive size and scalability, have further intensified these demands, with their global capacity having increased twofold in the past four years and anticipated to do so again in the next four years. These data centers have dominated the colocation market, and this trend appears to be accelerating.
Currently, hyperscale accounts for 52% of the revenue in London’s data center market, and is projected to rise to 68% by 2028. Maintaining and operating these increasingly large and complex systems requires substantial energy and real estate, exacerbating the existing strain on electrical grids and available land.
As demand continues to outpace supply, the industry faces several key consequences, including rising power and land costs, as well as shortcomings in existing electricity infrastructure shortcomings. In power-constrained markets such as Dublin and Singapore, where the energy situation is particularly dire, moratoriums on new data center construction are being implemented. Ireland serves as a key example of these challenges, with data centers consuming approximately 18% of the nation’s electricity, contributing to the threat of blackouts amidst strained power grids.
In response to these challenges, EirGrid, Dublin’s state-owned grid operator, has decided not to approve any new power grid connections until at least 2028. This decision not only jeopardizes the timelines of current data center projects but also presents significant hurdles for starting new projects due to the scarcity of available electricity infrastructure. With available data center capacity diminishing, pre-leasing capacity several years in advance has become the norm, driving up occupancy rates. GCP’s primary research in 2023 indicates a market even more restricted than expected.
If accounting for pre-leases, the built out occupancy rates peaked at 127% in 2023 and this trend is expected to persist, with rates exceeding 100% for the next five years. These developments highlight power and space as critical limiting factors, threatening to bottleneck this rapidly growing industry.
