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Leasing rate for NA datacenters before construction hits 84% • The Register

Leasing rate for NA datacenters before construction hits 84% • The Register
Leasing rate for NA datacenters before construction hits 84% • The Register

Since 2023, the leasing rate for datacenters in North America that haven’t even been fully built yet has shot up and now stands at 84 percent for the first quarter of this year.

“Preleasing activity in primary markets is strengthening, with 2,553.1 MW (83 percent) of the 3,077.8 MW under construction pre-leased,” real estate and investment biz CBRE noted back in March for the year 2023. Preleasing, or leasing for datacenters before they’re completed, has persisted into 2024 with a rate of 84.3 percent in Q1, CBRE told The Register today. For prior years, this rate had been closer to 50 percent or so, we understand. And that 84.4 percent is said to be an all-time high since at least 2020.

Demand in Europe is also reaching record highs, which saw an explosive Q2 last year that included elevated pre-leasing.

This is despite supply of datacenters growing rapidly, with construction up 46 percent in 2023 compared to 2022, and actual supply increasing by 26 percent, we’re told. Vacancy rates at existing datacenters is also quite low, at 3.7 percent on average in the regions with the largest amount of capacity, which isn’t quite an all-time low but is close. Low vacancy rates is an indication of existing tenants renewing as well as people moving in.

Not all landlords are keen to renew, as ending a lease to free up capacity that can be leased again at a higher rate is possible.

Naturally, as there’s significant demand for datacenters and computing capacity, the monthly cost to rent has gone up as well. 2022 saw a 14.5 percent increase over 2021, and 2023 has accelerated that to 18.6 percent over 2022.

New datacenters may not relieve these rates all too much, though. “Construction costs remain elevated due to ongoing shortages in critical materials like generators, chillers and transformers, despite improved supply chain resilience,” CBRE said earlier this year. Presumably, the shortage has been at least partially caused by the rapid rise in construction.

Not that new datacenters can be built all that quickly, as the usual timeline from start to finish is between one and three years.

The ability to build so many datacenters hinges on the availability of capital to fund construction. Big companies like Microsoft, which wants to triple its datacenter capacity in the first half of 2025, already have the cash needed to get the ball rolling, though sustaining this growth requires more funds. In the long term, CBRE anticipates this will be feasible, citing a 58 percent compound yearly increase in revenue made from AI software per S&P Market Intelligence.

Should these returns fail to materialize, though, we can probably guess that the demand for datacenter capacity won’t remain at this level for very long. ®

Leasing rate for NA datacenters before construction hits 84% • The Register

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