AI and Cloud Adoption Propel Data Center Demand to Record Levels in 2023
The data center industry is experiencing a seismic shift unlike anything seen before. Fueled by the explosive growth of artificial intelligence (AI), machine learning (ML), and the continued global adoption of cloud services, demand for data center capacity has reached record levels in the first half of 2023. From hyperscale operators to financial institutions and healthcare giants, enterprises across every vertical are racing to secure data center space — and the supply simply cannot keep up.
The AI Revolution Is Reshaping Data Center Requirements
Artificial intelligence is no longer a niche technology confined to research labs and tech startups. It is touching every corner of every industry at a breathtaking pace. From generative AI platforms that redefine how businesses operate, to machine learning models that optimize complex logistics chains and accelerate drug discovery in healthcare, AI's infrastructure requirements are immense — and growing by the day.
At the heart of this transformation sits the modern data center. These facilities serve as the backbone of AI at scale, providing the computational power, cooling capacity, and network connectivity that large language models and other AI workloads demand. According to JLL's 1H 2023 North American Data Center Report, AI requirements — paired with sustained cloud service adoption — are the primary catalysts behind a wave of hyperscale expansion that is rewriting industry records.
The implications are profound. Organizations that delay their data center planning risk being locked out of capacity for years. This is not hyperbole; it is the current market reality.
Record Absorption and a Supply Crisis
The first half of 2023 closed with record absorption rates across North American data center markets. Hyperscalers, financial firms, healthcare companies, and large enterprises moved aggressively to lock in space, driving absorption figures to levels never previously recorded. The urgency is not difficult to understand: most of the supply expected to come online in the third and fourth quarters of 2023 was preleased or placed under exclusivity well before delivery.
Perhaps more striking is what this means for 2024. Supply coming online in that year is also expected to be largely preleased, leaving very few options for organizations that have not begun their site selection process far in advance of their desired go-live date. The development timeline for new data centers has stretched to three to five years — and in some cases, even longer. For businesses operating on tight digital transformation timelines, this reality demands immediate strategic attention.
Andy Cvengros, Managing Director at JLL, put it plainly: "The data center industry is continuing to experience explosive growth in demand which is leading to completely sold-out primary markets, secondary market expansion and the development of newer tertiary markets. If you want a new data center within that timeframe, start planning for it now, as we don't see any sign of this demand slowing or the power situation getting any better."
Primary Markets Reach Supply and Demand Imbalance
Not all markets are responding to this pressure in the same way, but the overarching theme is clear: primary markets are under severe strain. In the first half of 2023, Phoenix and the Northwest emerged as absorption leaders, recording 194.5 MW and 185.9 MW respectively, outpacing the traditionally dominant Northern Virginia market, which posted 184 MW during the same period.
This shift reflects both the physical constraints of established markets — particularly regarding available power infrastructure — and the growing appetite for geographic diversification among enterprise and hyperscale tenants. As primary markets hit their limits, operators and developers are increasingly turning to secondary and even tertiary markets to absorb overflow demand.
The supply-demand imbalance in primary markets has had a direct and measurable impact on pricing. With limited colocation inventory available, data center operators have responded by increasing pricing by as much as 20 to 30%. For tenants who have historically benefited from competitive pricing in mature markets, this represents a significant cost increase that must be factored into long-term infrastructure budgeting.
Secondary and Tertiary Markets Step Into the Spotlight
The saturation of primary markets is accelerating growth in locations that were previously considered secondary or tertiary options. Markets such as Dallas, Atlanta, Chicago, and emerging corridors in the Southeast and Mountain West are seeing increased developer activity and tenant interest. These markets offer several advantages:
- Greater availability of land and power infrastructure relative to primary markets
- Competitive pricing compared to sold-out primary hubs
- Lower latency requirements for regional deployments that do not need proximity to major financial centers
- Developing incentive structures from local governments eager to attract economic investment
For enterprises with flexible deployment strategies, secondary and tertiary markets represent a viable and increasingly attractive alternative — provided they act before those markets too reach capacity constraints.
The Power Challenge Is a Critical Bottleneck
Underpinning the entire supply constraint narrative is a factor that extends well beyond real estate: power. The development timeline for new data centers is being stretched not only by construction complexity but by the difficulty of securing adequate power capacity. Grid infrastructure in many high-demand regions was not designed to accommodate the scale of consumption that modern AI and hyperscale workloads require.
Utilities and grid operators are struggling to respond at the speed the market demands. This challenge is expected to persist and, in many regions, to worsen before it improves. Companies planning new data center deployments must now treat power availability as a primary site selection criterion — not an afterthought.
What This Means for Enterprise Strategy
The message from the 2023 data center market is unambiguous: planning horizons must extend further, and action must begin sooner. Organizations that are still in early-stage discussions about their infrastructure needs are already at risk of being unable to meet their preferred go-live timelines. Whether the requirement is driven by AI model training workloads, cloud migration initiatives, or digital transformation mandates, the underlying message is the same.
Businesses should conduct proactive capacity planning exercises now, engage with data center advisors and brokers to understand what inventory exists across primary, secondary, and tertiary markets, and model scenarios that account for pricing increases and extended lead times. Those that treat data center access as a strategic priority — rather than a procurement afterthought — will be far better positioned to compete in an AI-driven economy.
Looking Ahead: Demand Shows No Signs of Slowing
With AI adoption accelerating across every industry vertical, cloud spending continuing to grow globally, and enterprise digital transformation programs still in mid-execution in many sectors, the structural drivers of data center demand remain firmly in place. 2023 has set a new baseline for what record demand looks like — and all indicators suggest that 2024 and beyond will continue to challenge the industry's ability to keep pace.
The data center is no longer just an IT infrastructure consideration. It is a strategic business asset, and securing access to it has become one of the most consequential decisions enterprise leaders will make in the years ahead.