Key Points
- Texas is poised to supplant Virginia as the world’s largest data market, according to a new report from JLL.
- At the end of 2025, data center vacancies remained at a historic low of 1% for the second year in a row.
- Demand is now driven by hyperscalers and AI, and headwinds from new developments are making construction less robust than it could be.
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions, straight to your inbox. Data center construction is growing at such a rapid pace in North America that the majority of new construction in the sector is now expanding beyond the initial traditional markets. Texas is poised to unseat Virginia as the world’s largest data market, according to a new report from JLL, which calls it an “inflection point.” About 64% of the 35-gigawatt construction pipeline now extends beyond so-called mature markets, like Virginia, which has long been the largest data center market. At the end of 2025, data center vacancies remained at a historic low of 1% for the second year in a row. “The data center industry has officially entered hyperdrive,” said Andy Cvengros, executive managing director and co-head of U.S. data center markets at JLL. “The record vacancy rate sustained for two consecutive years provides compelling evidence against bubble concerns, especially when virtually all of our massive construction pipeline is already pre-committed by investment-grade tenants.” Almost all, or 92%, of the capacity currently under construction is pre-committed, indicating that vacancy rates will likely remain quite low at least through 2030, according to JLL. Demand is now driven by hyperscalers and artificial intelligence, and headwinds from new developments keep construction less robust than it could be. JLL also noted that the top five hyperscalers are planning capital spending of $710 billion in 2026 to build the necessary infrastructure. Lenders appear eager to get in on it, with a record total funding of $75 billion last year. Nuveen, a global real estate development company, is taking a short-term approach to the sector, capitalizing on current strong demand but following a build-and-sell model to mitigate risk. “There is definitely strong demand and we believe that over the next five years there will not be an oversupply situation,” said Chad Phillips, global head of Nuveen Real Estate, adding that the long term is less predictable. “There’s going to be quite a rapid evolution, and that’s why we’re looking at shorter-term builds and then selling.” There are of course considerable risks linked to constraints linked to infrastructure, particularly in terms of electricity. Grid connection times average around four years or more. As a result, major tenants must secure capacity several years in advance. This spurs expansion into new markets that have more of this energy available. “Many companies are looking at building on-site power generation,” said Andrew Batson, global head of data center research at JLL. “This reduces risk. Ultimately, however, the overwhelming majority of operators want long-term network connectivity.”