Colocation vacancy is nearing 0%, which is constraining economic growth and undermining national security. Data centers are critical infrastructure and restrictive market conditions are counterproductive over the long-term.

The construction pipeline of 8 GW is 73% preleased, signaling that any meaningful loosening of market conditions remains a few years away at minimum. Even if preleasing activity slows significantly in the near-term, vacancy would likely remain below 5% through 2027. A more likely scenario is that vacancy holds in the 2% range through 2027.

Companies looking to expand their data center operations may be limited to preleasing in new developments. This could be followed by a year or more of waiting for construction to be completed before taking occupancy.

The data center sector remains among the most favored real estate asset classes due to insatiable tenant demand, limited supply and rising rents.

Preleasing demand continues to bode well for all phases of data center financing including construction loans, transitional loans, and stabilized loans. The lender pool depth continues to expand, inclusive of commercial real estate banks, project finance lenders, life companies, and debt funds. 

Horizontal development financing needs have been in higher demand as utility companies are requiring hard deposits earlier in the power procurement process. There are also increased capital needs by development groups utilizing behind-the-meter solutions or bridging alternatives.