The rapid adoption of AI and surging demand for cloud services have pushed data center vacancy rates in North America to historic lows, despite ongoing waves of new construction, according to a CBRE report released Tuesday.

Vacancy rates during the first quarter of 2025 fell significantly in major U.S. markets, averaging about one-third of the global average of 6.6%, the report said. That’s a 2.1 percentage point decline compared to Q1 2024.

“Rising demand from AI and hyperscale users is compressing vacancy and operators with available capacity in key markets are commanding premium rates,” said Pat Lynch, executive managing director for CBRE’s data center solutions.

As enterprises seek to diversify deployments between cloud and on-premises setups, rental costs for colocation facilities have jumped dramatically. Northern Virginia and Chicago saw year-over-year rental increases of 15% and 14.7%, respectively.

“We have not seen pricing follow historical norms, which for 2013 to 2020 was a decrease year after year,” said Gordon Dolven, director of CBRE Americas data center research.

Dolven noted that a combination of skyrocketing demand and rising construction costs is disrupting the market, while power availability is now a limiting factor. “We used to bring the power to the site, but now we have to bring the site to the power,” he said.

Securing new high-voltage lines and substations is increasingly difficult due to zoning, permitting, and easement constraints, he added.

In response, hyperscale providers like AWS, Microsoft, and Google Cloud are ramping up capital investments, committing over $250 billion to chips, infrastructure, and construction to support AI-driven modernization. That wave of investment has helped spur a 43% year-over-year increase in new construction across the four largest data center markets: Northern Virginia, Atlanta, Phoenix, and Chicago.

Even so, much of that new capacity is being preleased before it's operational, and construction delays are pushing project timelines well into 2027.

Colocation providers like CoreSite are working aggressively to expand infrastructure. “We’re focused on early procurement, working through the traditional aspects of land banking and making sure we have runway in front of us to meet what our customers need,” said Anthony Hatzenbuehler, SVP of Operations at CoreSite. “If you’re not thinking far ahead, then you’re behind.”

While demand for AI infrastructure shows no signs of slowing, industry experts warn that systemic risks could emerge if power, land, and permitting bottlenecks are not resolved. Some municipalities are even beginning to restrict large-scale data center development due to grid stress and land-use concerns.

Industry analysts suggest that next-generation colocation design will likely emphasize energy efficiency, modular scalability, and closer proximity to renewable energy sources.

At the same time, the market is becoming more competitive. Startups and mid-tier colocation providers are trying to capture market share by targeting emerging AI workloads in secondary markets.

“Infrastructure is no longer just about square footage or megawatts—it’s about how fast you can deliver, and how close you are to reliable power,” Dolven emphasized.

Originally reported by Matt Ashare in Construction Dive.