Data Center Construction Starts May Be Slowing Down Despite Gold Rush

The data center construction boom may be starting to plateau, according to a new report.

Construction planning for new data centers cooled significantly in October, according to data published this week by analytics firm Dodge Construction Network.

After nearly a year of skyrocketing growth, it is the second straight month in which the pace of new data centers entering the planning pipeline has slowed, even as demand for data center capacity climbs to unprecedented heights.  

“Data centers continue to dominate large project activities, so still definitely an important piece of the picture here,” said Sarah Martin, associate forecasting director at Dodge Construction Network, in a video accompanying the report. “We’re just seeing those levels moderate a bit from the above-average level of growth that we’ve seen in recent months.”

The decelerating data center construction numbers headlined the monthly Dodge Momentum Index report, which tracks the value of non-residential building projects going into planning and is widely considered a leading indicator for construction spending. 

In October, the DMI for the commercial sector — which includes data centers, office, industrial and hotel development — fell 6.7% from the prior month, a decline the report’s authors attribute specifically to fewer new data center projects entering planning. The numbers come on the heels of a September report that showed a data center slowdown causing commercial planning to contract by 7.8%. 

Still, Martin cautions that, despite the tempered growth of data center planning starts, the sector’s total planning and construction pipeline remains close to record levels.

Many of the largest projects to enter the construction planning phase over the past 60 days have been data center developments, including EdgeCloudLink’s $450M data center in Houston, the $390M Project Nova Data Center in Eagan, Minnesota, and two phases of the SNA Data Center in Cedar Rapids, Iowa, with each phase valued at close to $375M. 

Data centers have had an outsized impact on planning growth, according to Martin — a demonstration of the sector’s growing prominence across the commercial real estate landscape. While commercial sector planning was up 18% year-over-year in October, the segment would have seen a 2% drop-off if data centers were removed from the equation. 

“The level of data center planning starts remains robust, it is simply the rate of growth that is moderating after surging in recent months,” Martin told Bisnow in an emailed statement.  “Data center planning accounted for roughly 70% of total office planning activity in October (as traditional office activity continues to be weak) — and we expect the sector to continue to be strong going forward.”

According to the report’s authors, the slowdown in construction planning is tied, at least in part, to the Federal Reserve’s decision to begin cutting interest rates in September. They suggest that owners and developers may be putting planning decisions on hold until they see the impact of those rate cuts into the early months of 2025.

But the tempered pace of data center construction planning also comes as power constraints in nearly every major market force developers to delay projects while they wait for electricity.  

Regional power grids across the U.S. don’t have enough electricity to meet skyrocketing demand from data centers in the development pipeline. Power demand in the U.S. is expected to outstrip supply as soon as next year, with data centers accounting for 44% of new energy consumption — by far the largest share. 

Utilities, which will need to increase their annual power generation by as much as 26% by 2028, are scrambling to build out new transmission lines and other infrastructure, but those projects can take years. Meanwhile, wait times to get power to data center development sites are nearing 10 years in many markets.