Northern Virginia is again the No. 1 data center market, but challenges are mounting

Northern Virginia remains, by far, the largest data center market in the world, according to a new report from real estate firm JLL, but the market is facing growing constraints — specifically land and availability of power.

In 2023, 1,900 megawatts of multi-tenant data center inventory was delivered, and 2,100 megawatts of single-tenant inventory was delivered. Another 1,340 megawatts is currently under construction.

Data center leasing activity in 2023 reached a record high.

The Northern Virginia data center market ended the year with 51 million square feet of gross operating data center space. That’s the equivalent of about eight Pentagons and almost 4,000 megawatts of inventory, a metric used to measure data center capacity. That requires enough electricity to power about 800,000 homes. That is three times the capacity of the world’s No. 2 data center market, Singapore.

While historically, utility provider Dominion has satisfied demand, it has struggled in recent years to keep up with the surge in power needs, according to JLL. Data centers, while generally unassuming looking from the outside, require a lot of electricity to operate.

“Data centers generate a lot of heat and they use advanced air control systems to keep their computers running cool. According to Dominion, the power capacity used by data centers doubled between 2018 and 2022. And they are forecasting it will double again by 2028,” Michael Hartnett, senior director of Mid-Atlantic research at JLL, said.

To address energy constraints and to meet future demand, major transmission infrastructure is under construction, starting with two 500 KV transition lines in Northern Virginia to serve the data center market.

Transmission lines and data center development are not without controversy, as local jurisdictions grapple with land preservation and environmental concerns.

Among those developments facing pushback is construction of what would be the largest data center campus in the world in Prince William County and another huge data center planned in Fairfax County.

In addition to energy demands, data centers also require a lot of space, and data center developers are encountering fewer development options, which is leading to fewer leasable options for data center customers.

As a result, the data center vacancy rate in Northern Virginia is below 2%, compared to an average 22% vacancy rate for office buildings in Northern Virginia. And rental rates continue to increase, with enterprise users needing to act quickly to secure space.

As land becomes more scares, hyper-scalers are looking beyond Loudoun, Prince William and Fairfax counties for options.

“One county would be Fauquier County, which is starting to see more demand from data center operators,” Hartnett said. “Another way to look at it is developers looking beyond Northern Virginia to secondary markets. And those could be markets such as central Ohio, where it is more cost-effective and there are fewer power constraints.”

For developers, the Northern Virginia data center market remains lucrative. JLL reports favorable market conditions will continue, with availabilities of more than 1 megawatt in record demand, and sites of scale in Loudoun and Prince William counties trading at a premium.

Almost all data center demand in Northern Virginia is for cloud services, accounting for 82% of occupancy as of the end of 2023.

JLL’s full North American Data Center Report is free for download, though it requires registration.