Data center market defies early 2025 turbulence

CHICAGO, Oct. 14, 2025 – Despite questions in early 2025 about sustained AI demand and warnings of potential market corrections, North America’s data center sector has emerged stronger than ever to finish out the year. The industry’s resilience in the face of regulatory headwinds, tariffs, AI bubble worries and utility grid constraints reveals a market that has matured beyond speculative growth into essential infrastructure.

“Despite early-year turbulence around DeepSeek, tariffs and hyperscaler deal concerns, the sector posted record numbers at midyear,” said Andrew Batson, Head of U.S. Data Center Research at JLL. “We’re seeing unprecedented demand dynamics that are fundamentally reshaping how we approach site selection, financing and development timelines.”

Vacancy in the sector is at a record low 2.3% with 8 GW of colocation capacity under construction, 73% of which is preleased. Rent growth has averaged 12% CAGR over three to five years. JLL leaders discussed these trends during a LinkedIn live webinar on October 6.

Power infrastructure becomes the ultimate market manager

The most significant development reshaping the data center landscape is the utility sector’s response to overwhelming demand. Utilities have implemented dramatic reforms. For example, AEP cut its power request pipeline from 30 GW to 13 GW through stringent new requirements including million-dollar application deposits, letter of credit obligations and take-or-pay policies covering 85% of requested power consumption.

This shift has effectively eliminated speculative land plays while accelerating adoption of behind-the-meter natural gas generation as an interim solution. Industry leaders are increasingly viewing these power constraints not as temporary obstacles but as permanent market managers that will define development patterns for the next decade. The new reality requires developers to secure power commitments years in advance, fundamentally altering project timelines and capital deployment strategies.

“We’re very much in a seller’s market where anything that is coming online is now at a premium,” said Andy Cvengros, Executive Managing Director, Co-Lead of U.S. Data Center Markets, JLL. “We’re having to get ahead of demand cycles, advocating anything from a year and a half to two years prior to occupancy to secure footprint holds before space gets taken by other major users.”

The power procurement challenge has also sparked innovation in energy partnerships, with successful projects featuring oversized generation facilities that contribute excess capacity back to local grids. This approach helps address utility concerns about net power consumption while providing developers with more reliable pathways to large-scale capacity.

Enterprise market faces unprecedented displacement

Traditional enterprise users are experiencing the most dramatic shift in market dynamics since the industry’s inception. Pricing has doubled from $70 to $80 per kilowatt to $150-160 per kilowatt, while lease terms have extended from five to seven years to more than 10 years as landlords prioritize hyperscale tenants who can absorb entire buildings or campuses.

Planning timelines have expanded from 8 to 10 weeks to 18 to 24 months. Many enterprise users are reconsidering on-premises infrastructure or exploring partnerships with smaller regional operators who haven’t pivoted entirely to hyperscale focus.

The emergence of neocloud providers has added complexity to the credit evaluation processes, with some deals now featuring multiple layers of credit support, including vendor guarantees and equipment manufacturer backing from companies.

Capital markets experience historic liquidity surge

The capital markets segment is witnessing unprecedented activity levels with $4 billion in construction financing currently seeking placement, featuring the highest leverage ratios and lowest spreads in recent memory. Lenders are stretching to 85% of project costs at spreads in the low 200s over SOFR, reflecting strong confidence in preleased, credit-tenant developments.

Asset-backed securities (ABS) volume increased 40% year-over-year to $7.7 billion in the first half of 2025, while single-asset, single-borrower (SASB) transactions surged from $1.7 billion to $5.7 billion.

“The biggest negotiation right now is if you’re going to get a backstop with a non-credit entity,” said Carl Beardsley, Head of Data Center Capital Markets at JLL. “How long is that backstop? It’s great to get a 15-year lease, but if you’re only getting a third of that guaranteed by a credit entity, it’s really viewed as a five-year lease.”

The market is seeing formation of massive new investment vehicles, with multiple groups announcing $3-7 billion funds specifically targeting stabilized data center acquisitions.

Bubble concerns addressed by market fundamentals

Despite unprecedented growth, industry leaders dismissed concerns about a market bubble, citing structural factors that differentiate data centers from other speculative asset classes. The lengthy development timelines and substantial power procurement requirements serve as natural market regulators.

“I personally do not think we’re in a bubble,” Beardsley said. “The challenge is to get quick power, which, in our world, 2027 is quick power. That’s a couple years out, so it’s difficult to meet the demands that are on the table due to power lead times.”

The power procurement process requiring substantial deposits, letters of credit and take-or-pay policies effectively eliminate speculative participants.

“The power process is a good governor to keep people in check and having these letter of credits and making them pay for what they’re requesting is a good way to keep them responsible,” Cvengros added.

Additionally, the tenant base consists primarily of the world’s largest, most well-capitalized technology companies, providing fundamental demand stability that supports long-term market health.

Geographic expansion and AI infrastructure driving future growth

The industry’s geographic footprint is expanding beyond traditional Tier 1 markets as power constraints force development into secondary and tertiary locations. Markets like Des Moines, Iowa and New Albany are emerging as new availability zones, while established markets are extending their boundaries 50-100 miles from historical centers.

AI workloads are creating distinct infrastructure requirements, including liquid cooling capabilities and higher power densities. AI loads require water cooling at the rack level, with some cabinets running 100 kilowatts versus traditional deployments.

“As operators navigate these challenging market conditions, facility optimization and energy efficiency have become critical differentiators,” said Matt Landek, Division President, U.S. Data Center Work Dynamic. “We’re seeing 15 to 20% operational cost savings through advanced monitoring systems and strategic maintenance programs, which directly impact tenant retention and asset values in this competitive landscape.”

Industry outlook: Infrastructure maturation continues

With an estimated 100 GW of data center capacity potentially breaking ground between now and 2030, the industry faces both unprecedented opportunities and infrastructure challenges. The sector’s ability to navigate power procurement constraints while serving diverse tenant needs will determine which markets and operators emerge as long-term winners.

The market’s resilience through early 2025 challenges demonstrates data centers’ evolution from speculative real estate plays to essential infrastructure. As AI adoption accelerates and digital transformation continues across industries, the sector appears positioned for sustained growth despite near-term constraints.

Read more about the data center sector’s performance in JLL’s North America Data Center Report – Midyear 2025 and view the full webinar recording here.

For more news, videos and research resources on JLL, please visit JLL’s newsroom.

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