The rush among technology and real estate firms to invest more than $1 trillion to build data centers in coming years has sparked concerns that a bubble of superheated spending on artificial intelligence could burst, damaging financial markets and the economy.
Those worries have escalated in recent days as such firms as OpenAI, chipmakers AMD and Nvidia, and search engine giant Google have rolled out multibillion-dollar data center deals to meet growing demand for AI.
Real estate services firm JLL estimates that projects totaling more than 100 gigawatts of capacity will open or break ground by 2030. Even so, executives from the brokerage’s data center practice downplayed the risk of overbuilding during a presentation Tuesday.
That’s largely because of long project lead times that include waits to connect to aging and overextended power grids, along with other headwinds that should help keep development in check, executives said.
“Compared to almost any other asset class, our product takes a long time to get out of the ground,” JLL Senior Managing Director of Capital Markets Carl Beardsley said. “There’s a good balance of supply and demand, so I personally do not think we’re in a bubble.”
The average waiting time for a grid connection across the U.S. is now four years as rates have increased and utilities require deposits and credit guarantees from operators, according to JLL’s midyear North America data center report.
While the delays and stringent power requirements create a major bottleneck for moving projects forward, they also keep development from becoming too heated, the JLL executives said.
The requirements that data center developers provide letters of credit and pay up front for up to 85% of their future power use are “a good way to keep them responsible for how they grow,” Andy Cvengros, JLL executive managing director, said during the presentation.
Also, some of the new developers getting into the data center business for the first time are running into zoning challenges and community opposition. That raises questions about whether some of the projects will be able to advance to the construction stage, he said.
“Every day, you open up your web browser and there’s somebody announcing a billion-dollar data center project,” Cvengros added. “A lot of these groups are newcomers. Ultimately, all they have is a piece of dirt that sits close to power.”
The grid connection delays have prompted some developers to explore such alternatives as natural gas, onsite generation and partnerships with energy companies, Beardsley said.