Data center demand pivots to larger sites, emerging markets amid power and cost challenges

Cushman & Wakefield recently released its Data Center Development Cost Guide, showing continued heightened demand for development sites as artificial intelligence, cloud storage, and an increasingly digitalized world tax existing capacity.

“Emerging and tertiary markets are stepping into the spotlight as developers hone in on areas with available land and power, while most established markets struggle with the same,” said John McWilliams, Head of Data Center Insights, Research Manager. “Major players in the data center industry are continually seeking larger parcels to accommodate future expansion and capture pent-up demand, aggressively pursuing those which have power commitments attached to them.”

With limited suitable options available in primary data center markets, and upward pressure on land values as a result, interest has turned to more rural areas where suitable options are less scarce and less expensive. Despite the interest in land with ample power options, developers are still transacting on prime parcels in strategic locations with plans to secure power through local utilities, renewable energy farms, or small modular reactors, at a future date.

As a result, average U.S. data center land prices for parcels 50 acres or greater have increased 23% from $4.39 per square foot (psf) in 2023 to $5.40 psf in 2024 through October.

Despite the geographic expansion, densely populated established markets still command a premium compared to emerging and tertiary geographies. These markets offer several advantages including dense and diverse fiber networks, low latency, more robust infrastructure, and plentiful government incentives. The close proximity of urban data centers to end users allows for reduced latency making them ideal for applications like autonomous vehicles, IoT, content delivery, financial trading, gaming and healthcare.

“These sites often face fierce competition from other buyers outside the data center industry, driving prices even higher. Markets such as San Francisco, Phoenix, and Virginia, particularly Northern Virginia, often outprice more rural markets in the Midwest. In-market hubs, like Elk Grove Village in Chicago, continue to be a hotspot for data centers, demanding a premium price,” said McWilliams.

Given the escalating challenge of securing ample power resources, sites capable of accommodating future expansion hold heightened appeal for buyers in the market. In line with this trend, the average size of acquired sites for data centers has grown over the past three years as developer continue to shift toward multi-building campuses. As of October, the average parcel procured in 2024 spans 224 acres, which is a 144% increase since 2022.

“We are seeing this trend toward larger parcels present in both emerging and established markets, with this year's average acreage for established and emerging/tertiary markets standing at 190 and 340 acres, respectively,” said McWilliams.

Artificial intelligence's rise has also profoundly impacted the desirability of locating data center operations in emerging and tertiary markets. Non-established markets often have slightly higher latency, however, contrary to edge data center applications, ultra-low latency is not always necessary for AI users.

About Cushman & Wakefield
Cushman & Wakefield is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com.