Important points
A version of this article first appeared in the CNBC Property Play newsletter with Diana Orrick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large publicly traded companies. Sign up to receive future editions directly to your inbox. Data center construction is expanding at a very fast pace across North America, with the majority of new construction in this area now expanding beyond its initial traditional market. Texas is poised to displace Virginia as the world’s largest data market, but the state is at an “inflection point,” according to a new report from JLL. Currently, about 64% of the 35 gigawatt construction pipeline extends beyond so-called mature markets, such as Virginia, which has long been the largest data center market. The data center vacancy rate at the end of 2025 remained at a historic low of 1% for the second year in a row. “The data center sector has officially entered the hyperdrive,” said Andy Kubengros, executive managing director and co-lead of the U.S. data center market at JLL. “Second consecutive years of record vacancy rates provide compelling evidence against bubble concerns, especially when nearly all of our large construction pipeline is already pre-committed by investment-grade tenants.” Almost all of the capacity currently under construction, 92%, is pre-committed, indicating that vacancy rates are likely to remain fairly low until at least 2030, JLL said. Demand is now being driven by hyperscalers and artificial intelligence, and headwinds to new development are making construction less robust than it could be. JLL also noted that the top five hyperscalers plan to spend $710 billion in capex in 2026 to build the necessary infrastructure. Lenders appear to be getting in on the action, with total lending reaching a record $75 billion last year. Nuveen, a global real estate developer, is taking a short-term approach to the sector, following a build-to-sell model to reduce risk while capitalizing on the current strong demand. “There’s actually a lot of demand and we don’t think we’ll be in oversupply for the next five years,” said Chad Phillips, global head of Nuveen Real Estate, adding that long-term predictions are difficult. “Evolution is going to happen pretty quickly, which is why we’re looking at short-term builds and then selling.” Of course, there are considerable risks around infrastructure constraints, especially when it comes to power. On average, grid connection timelines take about four years or more. As a result, major tenants need to secure capacity years in advance. That’s driving expansion into new markets where more power is available. “Many companies are looking at building on-site power plants,” said Andrew Batson, global head of data center research at JLL. “The risk is reduced. But at the end of the day, the overwhelming majority of operators want long-term grid connectivity.”
