In markets east, west and in between, computing development accelerates at warp speed.
AI, big data concept CREATE spring 2025 data centers
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As pretty much anyone with a smart phone knows, ChatGPT—along with other AI aspirants— is just one of the newest and most power-hungry kids on a data-hogging block that includes cloud computing, e-commerce, the “internet of things,” blockchain networks and approximately one gazillion TikTok videos. “Whether you’re streaming videos, scrolling through apps on your phone, no matter how data is consumed, it’s routed through a data center,” says John McWilliams, head of data center insights for Cushman & Wakefield.

John McWilliams
John McWilliams

In real estate terms, he notes, “Data centers are what we have considered an alternate asset,” as opposed to, say, office, industrial, retail and multifamily. “But over the last 20 years—first with the big boom after cloud computing arrived, now with the emergence of generative AI—development has been growing rapidly, investment has been surging, and revenues the data center industry earns are increasing rapidly.” Given the uncertain prospects of traditionally mainstream asset classes, data centers are emerging even more from their niche status, he adds.

Rather than by acreage or square feet, as in other areas of commercial real estate, data center projects are gauged by the amount of electrical power they consume. “We measure the market in terms of capacity, megawatts or gigawatts,” says McWilliams. The sheer volume of data routed through these centers has grown tenfold over the last decade, to reach a projected total of 181 zettabytes this year, he says. For reference, a zettabyte is 1 trillion gigabytes, equivalent to about 250 billion DVDs. A December 2024 report by the Department of Energy estimated that the power consumed by data centers in the U.S. tripled over the past decade and could triple again by 2028, when it could consume up to 12% of the nation’s electricity.

AI will drive much of that growth. That ChatGPT query we opened with? It required nearly 10 times as much electricity to process as a conventional search engine would. “As the demand for power has increased with the cloud and AI, the sites people need are much larger,” says Anne Rosenau, a managing director and a founding member of Cushman & Wakefield’s data center group, where she sits on the executive committee.

Anne Rosenau
Anne Rosenau

“Sites have gone from where people would buy 5 or 10 acres and 50 megawatts of power, to hyperscalers, private equity companies and co-location companies who are selling to the hyperscalers [looking for] 100-, 200-, 300-, 500-acre sites that have access to much more power.” These so-called hyperscalers are the primary actors in the global data center boom, Rosenau says, but she noted that there is still a strong market for much smaller “edge” sites where local brokers might play a part. Some operators are still focusing on “colo” centers, where they can lease server-rack space to smaller players.

Hot Data Center Markets

Rosenau, who brokered her first big tech deals with telecom projects in the late 1990s before today’s data centers came front and center, practices in northern Virginia, the epicenter of data center proliferation, which is estimated to support about 70% of global internet traffic.

Rosenau is adept at reeling off some reasons why: “There’s great access to technology, low incidence of natural disasters, and power has been cheaper than other big markets,” along with a connection to a robust fiber network and scads of tech talent. A 2023 market analysis by Newmark Group put Northern Virginia’s data center market at 3,400 megawatts—nearly three times the size of Dallas-Fort Worth the second busiest market. An additional 1,400 megawatts of capability is projected for northern Virginia by 2027. However, both Rosenau and the report authors note that growing local opposition and power capacity constraints are starting to slow the region’s growth.

The Dallas region, at more than 1,100 megawatts, is expected to grow by nearly 30% by 2027, spurred by lower power costs, good network connectivity, tax incentives and plentiful land. The next market down, by a hair, is Phoenix, which analysts projected could add nearly 50% in the next three years on the strength of cheaper power, fiber connectivity, a “pro-business environment” and open land. But Phoenix is also seeing a burgeoning semiconductor industry, which will compete for power and a limited water supply, which both industries need in copious amounts.

Data center in Virginia
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Modern data centers, like this one in northern Virginia (photographed in December 2024), can cover hundreds of acres, consuming many megawatts of power. One megawatt equals 1 million watts.

California’s Bay Area and Silicon Valley, now at about 750 megawatts, saw the earliest emergence of data centers as tech companies chose to co-locate their centers near their corporate headquarters. Though it’s projected to continue growing, earthquake concerns, restricted land availability and competition from other development are constraints.

Today, other markets are coming on strong, particularly in the Midwest and South. The Chicago metroplex already has a robust market of 1,000-plus megawatts, as its central location is popular with hyperscalers Microsoft and Meta. Land constraints there have prompted Compass Datacenters to take on the conversion of Sears’ 2.4 million square-foot former headquarters to a data center. As tight power delivery with long lead times slows development timelines around Chicago, other Midwest neighbors are seeing growing interest. Columbus, Ohio, has become a popular target, with about 40 centers run by 25 companies, and others are land banking sites of an average 200-plus acres for future development.

In addition to ample land that is zoned commercial, industrial or agricultural, low natural disaster risk and access to power and talent, Ohio offers data center developers a sales tax exemption for construction materials and equipment for investments and payrolls over a certain size.

Amazon Web Services in late 2024 purchased nearly 600 acres in Fayette County, Ohio—midway between Columbus and Dayton—for $102 million, part of Amazon’s announced plan to build up to eight data centers in Ohio and invest $10 billion by 2030 to develop them. Meanwhile, Vantage Data Centers announced it would open the first of three “hyperscale” data centers in New Albany, 20 minutes northeast of Columbus, later this year. Occupying a 70-acre site, the centers will total 1.5 million square feet, with a power capacity of 64 megawatts each. In Michigan, Microsoft purchased 316 acres in Kent County, south of Grand Rapids, in late 2024 from furniture maker Steelcase for a potential data center.

In Georgia, a company doing business as Atlas Development LLC in January filed a state application to seek rezoning to develop a 13-building data center campus costing $17 billion on 832 acres in Coweta County, 45 miles southwest of Atlanta. That project joins several other entities developing or operating data centers in the Atlanta area, including Digital Realty, CoreSite, Switch, Google, Microsoft, Flexential, H5, and QTS. In addition, Stream Data Centers has applied to build up to nine centers on 246 acres on the west side of Atlanta in Douglas County. Also in Douglas, Stack Infrastructure is developing two three-story data centers and has filed to build two additional two-story centers.

California’s Bay Area and Silicon Valley, now at about 750 megawatts, saw the earliest emergence of data centers as tech companies chose to co-locate their centers near their corporate headquarters."

A High (But Not Impossible) Barrier to Entry

A substantial share of the real estate side of data center development is the province of a relative handful of big players, such as Equinix, Digital Realty, CyrusOne or QTS. But that doesn’t mean there’s no room for smaller, more local players, notes McWilliams. “Like any industry, you have household names and those who might not be recognized outside the industry. There are also smaller players that own one or two data centers,” he says. “Like [in] the industrial or office sectors, you have significant players that own properties in dozens of markets, and others that might own a few in one market, and those who own just a property or two. It’s not controlled by just one group of players. However, smaller players have been receiving equity injections, and their presence is growing as a result.”

Adam Palmer CCIM, SIOR
Adam Palmer, CCIM, SIOR

Apart from the hyperscalers, there are myriad customers for varying quantities of leaseable rack space, from hospitals to the local police department, says Adam Palmer, managing principal LQ Commercial Real Estate Services, in Naples, Fla. Palmer, who has a tech background himself, has personally invested in a smaller data center development. “You can dip your toe into this business without doing those football-field sized deals,” he says. “There are more localized data centers.”

For those would-be toe dippers, McWilliams has some thoughts. “The most geographically advantageous area for a data center, right now, is anywhere you can get the power you need: You look at power first, then land availability,” says McWilliams. “Getting a power purchase agreement or commitment from a utility is something you would want to make a site attractive.”

Beyond that, he adds, “If somebody is looking to market land for a data center now, you want to be sure you have the entitlements first.” Most favored will be sites in places that are offering incentives to attract them, such as sales and use tax abatements. “After those, you’re looking at the cost of construction materials, labor—which can be imported from other states—and people who are skilled and knowledgeable.”

Rosenau adds, “You also need to be in an area that is not prone to natural disasters and to have access to fiber [lines].” A developer also should be prepared to pay for a power study—and to wait in line. “Everybody’s chasing power,” she says.

Another challenge for those who want to learn the business: “Most of the data centers are done completely confidentially, which makes it harder to get into the sector,” she says. “Typically everybody involved with a transaction has to be signed to confidentiality. We do transactions acquiring land without revealing the tenant. … Some of our clients, on our own servers, have pseudonyms to protect their identity.”

Facing Headwinds

Even with the vast surge of investment in data center creation, a growing number of obstacles are likely to slow development timelines, if not curtail the total number of possible projects. For historically popular areas like Northern Virginia, rising community pushback has started to be a factor, Rosenau says.]

“Northern Virginia was always a data center-friendly area, but more recently it has been impacted by the political climate,” as residents raise a range of concerns, from rising power rates to esthetic objections to noise complaints. (It turns out that thousands of servers humming simultaneously create quite a din.) “Fairfax County is changing zoning to make sites more difficult to develop as data center sites,” she says, and other communities are looking at similar changes. “Everyone wants to use Google and AI on phones, computers, refrigerators and cars, but they don’t want the data center next to them,” Rosenau says.

Another potential stumbling block is the ability to keep step with the surging demand for power.

The Biden administration made a major push for “clean” alternatives such as wind and solar, and Congress provided substantial funding to fuel expansion of those sources. The Trump administration appears to be reversing course and instead promoting fossil fuels and nuclear energy, but there are extremely long lead times in bringing such facilities online. “Many hyperscalers have made a commitment to be carbon neutral by 2030—but it will be interesting to see if they can they do that,” Rosenau says.

And then there are the unexpected curveballs in the evolution of technology, such as January’s surprise release of DeepSeek, the Chinese AI competitor to OpenAI, Meta and Google that was developed at a fraction of the cost. The announcement sent shock waves through tech stocks and momentarily threw into question the assumptions about exponential need for more data centers. Since that time, most analysts seem to have come to see DeepSeek itself as less of a limiting factor than a reminder that technology can change at the speed of Moore’s Law.

So, what are the trends for data center development in the U.S. in the next 5 years? Let’s ask DeepSeek:

“Alongside hyperscale facilities, there will be a rise in edge data centers to support lowlatency applications like Internet of Things, autonomous vehicles, real-time analytics and the proliferation of 5G networks. These smaller, decentralized facilities will be located closer to end-users. There may be a trend toward building data centers in rural areas to take advantage of lower land costs and cooler climates, which can reduce cooling expenses. Conclusion: The U.S. data center market is poised for significant growth and transformation over the next five years.”

And there you have it.

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