Managed service providers (MSPs) that require access to data centers to deliver services have known for a while now that demand for computer and storage services far outstrips the available supply. Vacancies in data centers hit a record low of 2.8 percent in primary markets in the first half of 2024. Meanwhile, vacancy rates in secondary markets fell to 9.7 percent, according to a recent report.
Not surprisingly, pricing continues to increase. The average monthly asking rate for a 250- to 500-kilowatt (kW) requirement across primary markets increased by 7 percent in the first half of 2024 to $174.06 per kW/month, the report notes.
Primary vs. secondary markets: Growth and challenges in data center capacity
CBRE defines primary markets as Northern Virginia, Dallas-Fort Worth, Chicago, Phoenix, Silicon Valley, Hillsboro, Atlanta, and the New York Tristate area, while secondary markets are made up of Austin/San Antonio, Central Washington, Houston, Southern California, Seattle, Denver, Minneapolis, and Charlotte/Raleigh.
The good news is that supply, measured by megawatts generated in primary markets, increased by 10 percent in the first half of 2024 and by 24 percent year-over-year. Additionally, the construction of new data centers in primary markets has, in terms of the megawatts that might be generated, increased 69 percent year over year. The bad news is that pre-leased tenants have already taken up 80 percent of that capacity, even as compute-intensive artificial intelligence (AI) applications continue to rapidly multiply.
On the plus side, certain secondary markets have seen some significant expansion of data center capacity. Austin/San Antonio (28 percent) and Houston (45 percent) are leading the way. Both areas are seeing significant expansion of data center construction with increases of 20 percent and 33 percent, respectively.
Challenges facing data center development
The trouble is that many of these projects will take longer to complete than expected simply because there isn’t enough power available. For example, Dominion Energy is adding two 500 KV transition lines in Northern Virginia to serve the data center market, however, it might still take as long as seven years to connect a large data center to the electric grid.
At the same time, the construction of data centers has become controversial in many localities. A group of residents and an activist organization are suing Prince William County and two developers to block the construction of the PW Digital Gateway. It will become the largest data center corridor in the world. Joined by the nonprofit American Battlefield Trust, the suit alleges it was illegal for Prince William County to approve 23 million square feet of data centers on roughly 2,100 acres along Pageland Lane in western Prince William near Gainesville.
Plaintiffs argue that the construction will harm the quality of life and nearby historical resources, such as the Manassas Battlefield National Park, turning a rare rural area in Northern Virginia into a ‘dystopian hellscape.’
Balancing costs and capacity
MSPs can always look to the major cloud service providers to provide them with access to infrastructure-as-a-service (IaaS) platforms. The issue is that it’s generally less costly over the long term to gain access to those resources at a lower cost from either other cloud service providers or to acquire servers and storage systems that MSPs then install in a data center managed by a hosting provider. The challenge, however, will be finding that capacity at a cost MSPs can continue to afford.
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