"The AI goldrush is firmly on the way," JLL said in its most recent state of the data center report.

The real estate services company said that the growth of generative AI applications like ChatGPT and Bard will accelerate demand for data centers, and help push for higher density facilities using liquid cooling.

Alongside AI, the wider enterprise adoption of cloud computing and the general post-pandemic digital transformation continues to drive "exponential growth" for the data center industry, with hyperscale and Edge computing leading investor demand, JLL said in the report.

“After the pandemic removed the four walls of the workplace, our new world of hybrid work has created an unprecedented need for digital technology. Employees are looking to their companies to create a seamless experience wherever they choose to work, requiring intelligent technology solutions to bridge the gap between the physical and the digital,” said Andy Cvengros, JLL managing director.

“As this reliance on digital technology increases, the data center industry is experiencing impressive growth and catching the eyes of investors and lenders as a strong, alternative asset class that has been relatively unimpacted by continued economic uncertainty.”

The global colocation data center market size is forecast to grow 11.3 percent from 2021-2026. The US has historically led that demand, accounting for 52 percent of all data center transactions from 2018 to 2022.

The US had 1,633MW of absorption in 2022 for the six US primary markets – Chicago, Illinois; Dallas-Fort Worth, Texasx; New Jersey; Northern California; Northern Virginia; and Phoenix, Arizona. These markets have 1,939MW under construction. Secondary markets typically have 100–600MW of supply and have become the focus of attention from investors, lenders, and developers who are seeking new opportunities in less crowded markets.

Around the world, the hyperscale market is expected to grow 20 percent from 2021 to 2026. Around 314 new hyperscale sites are in development today, and the number is expected to break 1,000 by the end of 2024 – up from around 500 sites just five years ago. Fifty-three percent of hyperscale capacity is in the US, according to Uptime Institute.

However, despite the rosy projections of growth, JLL warned that there were multiple factors slowing the build-out.

Supply chain constraints have eased from pandemic highs, but have not gone away completely - and risk flaring up further due to geopolitical tensions in Europe and Asia Pacific. Supplies of neon (key for semiconductor manufacturing) are limited due to the Ukraine war, for example.

Such supply pressures have "pushed back construction timelines, but with demand remaining strong, users have turned to preleasing," the report states. "In all regions, a large portion of the new supply pipeline is preleased, with most of the vacant new supply not expected to deliver until late 2023 or 2024. Absorption in 2023 is expected to be lower than in 2022 because developers have pushed back lead times from the norm of 12–16 months to more than 24 months. Deals for new spaces signed now will not be delivered until at least mid-2024 due to the time it takes to acquire components."

Manufacturing delays are also blamed on a lack of labor availability.

That labor shortage is even more acute in the data center sector. The skill shortage that has plagued data centers has yet to show signs of easing, with JLL echoing an Equinix report that called the lack of available talent the biggest challenge facing the technology sector as a whole in EMEA.

“At a time when our increasingly digital world is exploding with demand, data center operators are discovering that younger generations pose an entirely new recruitment challenge,” added Matt Landek, managing director of data centers & telecom, work dynamics, JLL.

“To help future-proof the industry and mitigate the labor pipeline drying up, scaling robust training and recruitment programs will be key in 2023 and beyond to build a stronger, more diverse pipeline of young talent.”

Not only did operators report difficulties finding talent, they also struggled to keep them - with many being hired by competitors in a fierce labor market.

Another challenge clouding the sector's growth is that of the wider global economy. Data centers are among the top three asset classes anticipated to see the largest net increase in loan exposure over the next 12 to 24 months, after relying on debt to fund their buildouts or acquisitions. As interest rates soar, that is cutting into their margins.

Further interest rate increases and a wobbling economy could make it harder for companies to complete larger transactions, JLL said.

"As investors search to maximize yields and obtain higher returns, fundraising for core assets has decreased and value-add and opportunistic has increased," the report states.