Episode 21 Pt. 2: Important Data Center Trends with Andrew Batson

Speaker A: Tech Trends 24. 7Leaders is a passionate podcast hosted by James P. Quinn on technology innovation. It provides insightful interviews with key and inspiring innovators in areas of corporate technology, office of the future, AI, real estate, sustainability, assistive technologies and other emerging technologies. Tech Trends 24. Seven leaders will smartly position you where your business life and industries are moving for the future. Andrew Batson is the head of Data Center Research and Strategy for the Americas at jll. Andrew brings a wealth of expertise in commercial real estate with a focus on data centers, property management and alternative assets. With 16 years of industry experience, he delivers crucial insights and analytics to clients and JLL's leadership team. His work encompasses sector analysis, industry trends forecasting and market share analysis. Uh, before joining jll, Andrew honed his skills as a research associate at the center for Public Management where he produced economic impact reports and strategic plans for various industries. Welcome, Andrew.

Speaker B: Great seeing you. Today we have on the podcast Andrew Batson, who is global Head of Data Center Research for jl. Great seeing you, Andrew. How you doing?

Speaker C: James, Great to see you.

Speaker B: Well, appreciate, John. You know, I think our timing' spot on because this week you released the JL year end 2025 report, correct?

Speaker C: I did, yeah. I should say we did.

Speaker B: Well, we did, yes.

Speaker C: Some new trends and some that have remained the same. Yeah. And happy to dive into it with you.

Speaker B: Excellent. Well, why don't we, uh, why don't we start off of, you know, from the report. What are you seeing in terms of the trends, you know, what's changed and then we can go back and what's continuing.

Speaker C: Yeah, so what's changed? A couple points. First, let me mention frontier markets. So we're tracking development activity across all of North America and at ah, year end, more than half of the capacity under construction is what we're calling frontier markets. So that's x the top 20 mature markets that JLL and others have been tracking for years. Right. So that's West Texas, that's Ohio, that's in the Southeast, including Tennessee and in the Midwest where I. In Chicago, around Chicago you have Indiana and Wisconsin as well. A lot of activity in frontier markets. We do touch on the NEO clouds, which, you know, was a, um, key theme in 2025. Significant demand there. Obviously the pure play AI companies have made some significant commitments. That's starting to translate into shovels in the ground and then we can transition over to, you know, some of the continuing trends we see.

Speaker B: Absolutely. And just, you know, maybe we just talk about the NEO clouds for kind of coming out of Nowhere. What maybe drill down little bit on that kind of. Because again that was a lot of activity.

Speaker C: Yeah, for sure. So we recorded a JLL over 1 gigawatt in Neo Cloud transactions in 2025 in North America. There's CoreWeave, uh, which is a household name at this point. But you know, there is a deep bench of neocloud players below that, many of which JLL is working with that are looking for space in really all size segments across the US you know there's some significant headlines of hundreds of megawatts that were signed. Also many transactions that are transpiring in the Colette 5 to 10 megawatt range in major metropolitan areas across the U.S. some of the larger headlines, as your audience is well aware, have been in frontier markets and they've been pushing that broader trend that I just mentioned in the Dakotas and elsewhere. And in kind of going a level deeper on that, the developers and operators behind those developments are also new, err, to our industries. There's kind of multiple facets of new faces at the negotiating table if you

Speaker B: will and kind of like I guess a continuing thing. Maybe we just. Could you give us some data points on supply and demand because again it just seems that you know, demand continues really be at an unprecedented level and supply is very tight. So maybe just get your the latest snapshot on that.

Speaker C: Yeah. So in that bucket of continuing trends, vacancy across North America remains at 1%. This is the second consecutive year pre leasing also remains very, very strong. North of 90% of all space under construction is pre committed. That supports our confidence in vacancy remaining near 0 through 2030. Additionally, in terms of pricing, pricing recorded a 9% increase year over year in 2025. That is broadly in line with with the 10% CAGR that we've seen in the industry for the last 5 years. Very limited supply and as you might suggest, uh, very robust rent growth.

Speaker B: And you basically said until 2020, 2030, correct? In terms of.

Speaker C: Yeah, that is correct.

Speaker B: You know that's another four years. I mean that's like. That's unbelievable.

Speaker C: Yeah, I mean with the average project taking a couple years to build and you know, all the pre leasing activity that we're seeing, we feel very confident. And that's not to say, you know, that there aren' measured risks in our industry, but we see those risks as very minimal and some of those are in novel businesses. We really see very, very strong fundamentals. As you and your audience are well aware, the majority of data center space is leased to the most profitable, highest rated companies. Globally. So there's a very, very strong demand base across our industry.

Speaker B: Uh, makes a lot of sense and I think that, you know, why don't we get, you know, your thoughts on constraints. What are the, you know, what's the headwinds that, you know, every part of the sector has been dealing with, you know, for, you know, 2025, end of, as well as what are you seeing it for 2026.

Speaker C: Yeah. As you are well aware, power remains the primary constraint, also the primary site selection tool. Uh, I still read articles where there'll be headlines saying you tertiary markets where power is abundant. And I kind of roll my eyes because there are constraints with power. Uh, the U.S. and Canada, we're quoting lead times for a, uh, grid connection for a new data center of 50 megawatts or greater. Average connection time for the grid is around four years. Now that's not to say that there aren't solutions both short term and long term that you and our broader data center team is helping clients with. There are short term solutions as relates to mobile natural gas turbines that can be brought on site for a year or two as a bridge solution. We are seeing an increasing amount of clients that are considering permanent on site power generation. In fact, our capital markets team is helping fund some of those deals. So we've got pretty clear visibility into what's happening in that space. Battery energy storage made a significant impact on the industry and kind of coming out, if you will, in 2025, multiple gigawatts of deployments or announcements last year, we see that continuing. And then the last point I'll touch on with power and energy is around nuclear. I did kind of sense the sentiment changed slightly as it relates to nuclear. Some of the optimism and exuberance I feel is tempered into more kind of cautious optimism with Most folks quoting mid-2030s for significant small modular deployments in the existing legacy nuclear. There continues to be some activity there which is interesting, but just my general sense of where we stand with power.

Speaker B: Yeah, ah, you know, it's the thing also kind of in the trenches on power. What you know, we're really dealing with every day is in how a lot of the power utilities like, you know, it's been unprecedented demand. They're trying to come up and staff up to address it. It's challenging for them and, and a lot of kind of the rules of engagement are changing dramatically and you know, continually. So like when you think you've gotten all the way, you know, to the last step, all of a sudden they decided, you know, what we're going to look at this a different way. So again I think it's something that is really groups are struggling with just because it's kind of just been a moving part, you know, moving part in terms of moving process that continues. So it's something that you know, we're working diligently with clients and it's definitely uh, difficult.

Speaker C: Yeah, I would definitely agree with that. The, the rules and regulations that have been put in place over call it the last 18 months have been quite significant and to a certain extent that's positive for the industry overall because it's removed some of the land speculation and some of that from the queue and helped accelerate some viable projects. But yeah, the industry is uh, changing very rapidly and power is a big component of that.

Speaker B: Yeah. So you know, kind of switching and talking, talking about the colocation market, you know, what are the key takeaways that the report illustrated and where are we?

Speaker C: Yeah, yeah, very interesting. So co location I would say these days most, most developments are being leased out as single tenant facilities. So you know I do kind of caution on the word colocation in some conversations because there's not, not really a whole lot of multi tenant development going on. The uh, hyperscalers are signing a significant portion of leased product that's in the, in the pipeline and that's in addition to what the hyperscalers are building themselves. I would say generally speaking the lease product that's under development, the colocation remains centered around, call it the top 20 data center markets in the U.S. we do see enterprise demand heavily concentrated in major metropolitan areas. And James, you're aware of this being in the New York area. Kind of curious. What's your latest pulse on the enterprise demand segment?

Speaker B: Yeah, no, and that's kind of like the enterprise market a lot of times kind of gets lost in the big announcements in terms of a gigawatt here or a gigawatt there. But clearly there is a, ah, very limited supply. Uh the demand is still off the charts and you know we're spending a lot of time with our clients really kind of focusing on where do they find future capacity. And it's something whereby that requires a lot of planning, requires you know, kind of looking at different types of markets that really were not considered a couple years ago just because the constraint of supply is so difficult. So the enterprise market is very strong. I think you know, co location rates have grown significantly and I know the report backs that up. So it's uh, it's a very tight market. There's a Lot of demand and people are really spending a lot of time planning on really how to address it because it is a challenging environment.

Speaker C: Yeah, couldn't agree more.

Speaker B: Yeah. And then you mentioned earlier, Andrew, in terms of the capital markets kind of, you know, what are the key takeaways in terms of capital markets and what investors are looking at?

Speaker C: Yeah. So I would say just off the bat, debt markets remain incredibly liquid. For the data center sector. There is a significant interest in placing debt and equity into the sector. And we see investment levels continuing to rise roughly at a 20% annual rate. That's alongside our growth forecasts for the region. Of particular note, securitized debt is a trend that we've been writing on for about a year now, at least. Yes. And SASB sectors, we're seeing increasing volumes of securitized debt roughly doubling every year Since. Call it 2020 or so. So to give some numbers behind that, combined ABS and SASB origination in 2025 totaled about 30 billion for North America. That's doubling from the year before. And we'll see, we'll continue to see significant growth in 2026. Most of the investment, James, as you're aware, is in the institutional space. So both domestic and international institutional capital equates to something like 75% of all asset trades and investments in our sector with the balance being kind of family offices and some owner user transactions as well. But you know, as these price tags get larger and larger, the pool of investors is getting smaller, but also more sophisticated.

Speaker B: Yeah, I think you bring up a good point because, you know, again, if you were talking about the last couple years, you know, your phone is ringing off the hook from a new private equity company that wants to get into data centers. And you know, that, you know, they really are pumped up about it. But you know, as, as you astutely point out is that with kind of the development costs significantly rising, we've seen, you know, a good part of that drop off. Where it is a lot of major institutional people that are getting after it. And kind of the, you know, emerging private equity I think is there's some, they're still out there and they're performing, but it's a lot less than it was historically.

Speaker C: Yeah, yeah, I would agree that. And operating these buildings is becoming increasingly sophisticated in its own right. So there is a place for kind of newer investors to the space to have kind of a silent investment role as part of a larger platform player or syndication, if you will. So there's still for sure opportunity to invest in the space. But in terms of being active operators of data center assets and it's an increasingly smaller pool of candidates.

Speaker B: Yeah. So why don't we just talk about uh, some emerging markets that are really of kind of, you know, are uh, top of mind for you and kind of see the growth and kind of as a new really opportunity for you know, data center development and you know, enterprises and hyperscalers going. So maybe just kind of talk about some emerging markets that really kind of caught your eye.

Speaker C: Yeah. Uh, so I mentioned this in the report. There are now over 101 gigawatt data center developments under construction in the U.S. you know, we, we were starting to see some of These transact maybe 18 months ago, but now there's actually shovels in the ground. And so one development can create a market in its own right, which is quite interesting. So for instance, in Michigan, there is one significant development just outside of Detroit that's a gigawatt, you know, that's defining a market in its own right. I mentioned earlier some of the Midwest markets there is significant activity in and Wisconsin that's spilling over from Chicago into the Southeast. There's quite a number of developments that are interesting. Atlanta has been hot for years. But the Carolinas, James, I know you spent some time down that way. There's a lot of activity in the Carolinas. You know, there's one gentleman in particular who's doing some interesting things in Tennessee, which is quite interesting. So that's, that's a few markets to mention off the top.

Speaker B: Yeah. Well, you know, I think that anything that you uh, know when going into the year, it seems like the growth has been great. Anything that you know, makes you, gives you pause or anything that we should be watching. I know. You know, it was kind of funny. There was a lot of you know, I think chatter like middle apart of last year, like oh, where there's a bubble coming and it's like. But you know, I think it maybe you want to talk about that because our research, it's like the cut, it's the complete opposite. Is that a safe statement?

Speaker C: Yeah, yeah. I would say weekly if not daily conversations with investors in the press and otherwise related to Are we in a bubble? Are we not in a bubble? The metrics from my vantage point clearly do not point in that direction. We have 99% occupancy, 92% of everything under construction is pre leased. As I mentioned earlier, these are some of the most profitable, highly rated companies globally. But that's not to say that there are not, there are some risks. But we think that they're measured and calculated and can be priced appropriately. Generally, we see strong growth in the sector through the end of this decade, but that will not be linear. There will be some turbulence. You know, we're talking hundreds of millions of dollars, hundreds of billions of dollars of investment annually into the sector. So there will be periods of digestion and recalibration. Uh, there's continuously new technology in a space that requires some, some resetting and redrawing, if you will, of developments. So I am, um, confident that this year will bring some unexpected headlines, but I'm also confident that as an industry, that we will work on through them.

Speaker B: Well, I think that's a great, great way to wrap up Andrew. As always, it's pleasure to have you on. I think, you know, great data points, you know, in terms of analyzing the market and, and always. We appreciate your time. Thank you, James.

Speaker C: Thank you. Have a great day.

Speaker D: We hope you enjoyed this episode ofTech Trends 24. 7 leaders. To learn more about technology trends, you can follow me on, uh, LinkedIn. You can also read my book, Tech Trends 24. 7 and the Impact of COVID 19, which is rated a must read book by CIO Insight. The book is available for purchase on Amazon or on our website, Tech Trends 24. 7. When conducting research for the book, I was inspired to see how technology innovation was making a positive difference in people's lives. As a result, in 2020, I founded Beacon of Hope365. Our mission is to leverage technology to help people in need. More information on the charity can be found on, um, beaconofhope365.org. Thanks again for tuning into this episode and a big thank you to my entire podcast team, Peyton Pellington, Sal Fortina, and Carmelo Patrone. See you on the next episode.