The leasing rate for datacenters in North America that haven’t even been fully built yet has surged to an impressive 84 percent in the first quarter of 2024. This marks a substantial increase from previous years, where the preleasing rate had hovered around 50 percent. The trend of preleasing activity continues to strengthen, with a notable 84.3 percent preleasing rate reported by real estate and investment firm CBRE.
Demand for datacenter capacity in Europe is also at record highs, following a remarkable Q2 last year with elevated pre-leasing activity. Despite a significant increase in datacenter construction in 2023 compared to the previous year, vacancy rates remain low at 3.7 percent on average in regions with the largest capacity. This low vacancy rate indicates a high level of tenant retention and new tenants moving in.
The monthly leasing cost for datacenters has been on the rise, with a noticeable 18.6 percent increase in 2023 over the previous year. Construction costs for new datacenters remain high due to shortages in critical materials like generators, chillers, and transformers. This scarcity, combined with the lengthy construction timelines of one to three years, contributes to the challenge of meeting the growing demand for datacenter capacity.
Major corporations like Microsoft are investing heavily in expanding their datacenter capacity to keep up with the demand. However, sustaining this growth will require additional capital investment. CBRE is optimistic about the long-term viability of the datacenter industry, citing a projected increase in revenue from AI software. Nonetheless, if returns fail to materialize as anticipated, the current high demand for datacenter capacity may not be sustainable in the long run.
