Expanding period in data center industry characterized by unprecedented growth

The global data center market is poised for significant expansion in the coming years, with projections indicating a potential increase of up to 20% through 2027. This growth is driven by various factors, including the shift towards more joint ventures and the increasing demand for data center infrastructure.

Investments in office assets continue to be strong, with annual global investment sales amounting to $241 billion. The data center sector saw a significant surge in 2024, with hyperscalers investing over $200 billion into new data centers.

The trend of growth in secondary markets is predicted to continue and intensify in 2025. JLL's 2023 report highlighted outsized growth in secondary markets such as Salt Lake City, Austin, and Las Vegas. This shift towards secondary markets is likely due to the lower costs and fewer regulatory hurdles compared to primary markets.

Infrastructure development is a key focus area, with inference facilities being built closer to population centers to ensure lower latency. However, AI training facilities, which often require up to a gigawatt of power or more, are being sited near power sources as opposed to population centers.

The report acknowledges the seemingly sudden and fervent excitement about nuclear power to help address power constraints in data centers. While the German Nuclear Technology Association (Kerntechnik Deutschland) advocates for the restart of some recently shut-down nuclear reactors within 3 to 5 years, no specific companies in Germany for 2025 have been identified as initiating new nuclear power plant projects specifically for data center operation.

Utilities share the view that it's unrealistic to put small modular reactor (SMR) installations in major metropolitan areas. Colocating SMR installations with data centers isn't likely, at least not in the near term. However, many market experts anticipate a doubling of small modular reactor agreements this year in terms of GW capacity.

The increase in global data center trading volume is partly due to a consistent rise in interest rates between the time when assets were financed several years ago, and today. This year's projects will require approximately $170 billion in construction loans and permanent financing.

A split is emerging between data centers designed for artificial intelligence training and those for inference operations. The report found that it can take four years or more to have high-capacity power lines extended to new data center development sites, highlighting the importance of strategic planning in data center location decisions.

The global data center investment sales have averaged around $7 billion for the last several years. Despite the projected growth, global data center trading volume is likely to record only a modest increase in 2025. The market is expected to shift from massive consolidation to more joint ventures in the next phase, signalling a more collaborative and strategic approach to data center development.