In the rapidly evolving world of technology, demand for data centers is skyrocketing, driven largely by the rise of artificial intelligence (AI). As industries across the board embrace AI to enhance decision-making, streamline processes, and improve efficiency, the strain on existing data center capacity has become increasingly apparent. According to a recent Cushman & Wakefield report, vacancy rates in major data center markets have plummeted to a mere 3%, with over 80% of new centers being pre-leased before they even come online. In response, developers are setting their sights on rural markets, where land is plentiful, power is more readily available, and latency requirements for AI applications are less stringent.
The push into these rural areas marks a significant shift in the data center landscape. Traditionally, major metropolitan areas such as Virginia, Atlanta, and Phoenix dominated the market. However, as demand continues to outpace supply, developers are exploring new frontiers—places like rural Georgia, North Carolina, Pennsylvania, and the Dakotas are now on the radar of hyperscale data center operators. This trend is driven not just by the need for space but also by a growing interest in large-scale power availability, a critical factor in the operation of data centers.
The Power Problem: A Growing Challenge
One of the biggest challenges facing data center developers today is securing an adequate and reliable supply of power. Data centers are massive consumers of electricity, and the rise of AI applications has only increased this demand. As AI workloads require more processing power, data centers must expand their capacity to handle these tasks. In response, many operators are partnering with power companies to build new substations, extend transmission lines, or even source power from alternative energy providers.
These partnerships are increasingly common, as developers seek to ensure that their facilities have the energy they need to function. Some agreements are being signed directly with third-party energy generation developers, including companies involved in wind, battery storage, solar, natural gas, and geothermal power production. This shift toward alternative energy sources is not only helping to meet the growing demand for power but also aligning with broader industry trends toward sustainability and carbon reduction.
As developers look to the future, many are now planning years ahead to secure power for their projects. This long-term planning is essential, as the process of building new data centers can take years, and delays in securing power can result in costly setbacks.
The Role of AI: Training vs. Inference
The growth of AI is a key driver of the data center boom. Two primary types of AI-related facilities are fueling this demand: AI training centers and AI inference centers. AI training centers, where AI models learn from large datasets and refine their decision-making processes, are typically located in rural areas with large amounts of available land and power. These centers are less sensitive to latency, meaning they do not need to be positioned near major metropolitan areas or cloud hubs.
In contrast, AI inference centers, which use trained AI models to process information quickly, require proximity to major cloud regions. These facilities need to operate in real-time, making latency a critical factor. As a result, AI inference centers are strategically located near major urban centers, where the infrastructure can support low-latency operations.
The division between these two types of AI data centers is shaping the development pipeline for both hyperscale and colocation centers. While hyperscale facilities—large, sprawling complexes that support massive amounts of data—are being built in rural areas, colocation centers, which offer shared space for multiple companies, are often positioned closer to cloud hubs.
Emerging Markets: The Next Frontier
The Cushman & Wakefield report highlights several emerging markets for data center development. While Virginia remains the largest market in the world, with 13.2 gigawatts (GW) either active or in development, other areas are quickly gaining ground. Atlanta, Phoenix, and Chicago are among the top markets, with significant amounts of capacity either built or under development.
However, it is the rural markets that are capturing the attention of developers and investors. Areas like rural Georgia, Minnesota, and Pennsylvania are becoming increasingly attractive due to their abundant land, lower costs, and access to power. These regions offer a solution to the constraints faced in more established markets, where land is expensive, and power availability is limited.
Interestingly, the report notes that active areas of development are now being defined more by utility provider service areas than by traditional metropolitan boundaries. This means that rather than focusing on proximity to major cities, developers are prioritizing access to reliable power grids. This shift represents a fundamental change in how data center sites are selected and developed.
Looking Ahead: A Power-Driven Future
As hyperscale growth accelerates, the future of data center development will be shaped by power availability. With AI continuing to drive demand for high-capacity, low-latency data centers, developers will need to be creative in how they secure the energy needed to power these facilities. Partnerships with alternative energy providers, microgrids, and long-term power agreements will become increasingly common as the industry seeks to balance growth with sustainability.
The expansion into rural markets represents both a challenge and an opportunity for data center developers. While these areas offer the space and power necessary to support large-scale facilities, they also require significant investment in infrastructure. The developers that succeed in these markets will be those that can plan for the long term, secure reliable power, and build facilities that can meet the evolving demands of AI and other high-tech industries.
In the years ahead, the race to build data centers in rural markets will likely intensify. As AI continues to strain the capacity of existing facilities, developers and investors will look to the next frontier—regions where power is plentiful, and the landscape is ripe for growth.
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