The US data center market delivered a record year in 2025, driven largely by AI and hyperscale cloud expansion. Yet even as demand reached unprecedented levels, new construction slowed for the first time in several years, highlighting growing challenges across the country.
According to a new report from CBRE, North American Data Center Trends H2 2025, the amount of new data center capacity under construction in primary US markets fell to roughly 5.9 gigawatts at the end of 2025, down from about 6.3 gigawatts the previous year.
That modest downshift was the first annual decline in development activity since 2020, reflecting mounting challenges in securing permits, zoning approvals, and sufficient electrical power for large data facilities.
Mega Growth Continues
Despite the slowdown in new projects, the overall market continued to expand rapidly. Primary market supply across major U.S. data center hubs climbed by roughly 36% year over year, reaching more than 9 gigawatts of capacity. At the same time, demand surged as tech companies rushed to secure computing resources to support AI systems, cloud services and e-commerce platforms.
That demand was reflected in occupancy growth. Net absorption (an industry metric measuring the increase in occupied computing capacity) rose sharply during the year. Across US primary markets, nearly 2.5 gigawatts of capacity was leased or brought into use in 2025, well above the roughly 1.8 gigawatts absorbed in 2024.
Northern Virginia remained the dominant data center hub. The region accounted for more than one gigawatt of newly occupied capacity during the year. Dallas-Fort Worth followed as one of the fastest-growing markets, recording nearly half a gigawatt of new absorption and attracting increasing attention from hyperscalers.
The strong leasing activity has resulted in capacity squeeze. Vacancy rates across primary markets fell to approximately 1.4% by the end of 2025, the lowest level on record. The scarcity of open space has pushed many customers to reserve capacity before facilities are completed, while some operators are arranging off-market agreements to secure additional deployments.
Rising demand has of course pushed prices upward. The average asking rate for wholesale colocation space for deployments between 250 and 500 kilowatts climbed to nearly $196 per kilowatt per month in 2025, the fourth consecutive annual increase. Pricing for larger installations grew even faster as companies competed for huge blocks of power and space capable of supporting high-density compute.
Surprising no one, AI is the driving force behind this surging demand. New workloads built around AI training and inference devour computing capacity and high-performance networking infrastructure. As companies deploy more advanced AI systems, operators have begun building facilities designed specifically for dense graphics processing units and other specialized hardware.
Facing Real Limits
Despite all the growth, the industry’s ability to expand faces some tough challenges. Power availability has emerged as the most significant obstacle to development. Large data centers increasingly need hundreds of megawatts of electricity, forcing developers to coordinate closely with utilities and even build their own dedicated substations. These projects add complexity and extend construction timelines.
Regulatory and planning processes offer plenty of roadblocks. Developers frequently navigate lengthy permitting and zoning approvals before construction can begin. Many local communities have pushed back fiercely, and there are numerous conflicts across the country that pit homeowners against data center developers.
As these barriers slow development in established hubs, some companies are exploring secondary markets with more available land and power. Regions such as Texas and parts of the Midwest are attracting new investment as operators search for land capable of supporting large-scale deployments.
Demand is widely expected to remain strong through the coming years. AI applications are only getting more energy hungry, and many tech companies are investing gargantuan sums in new infrastructure. Still, the pace of construction may continue to lag behind demand unless power access and regulatory approvals become easier to secure.
