Understanding the Data Center Outlook for 2025 and Beyond


Understanding the Data Center Outlook for 2025 and Beyond

Data centers will remain on the rise as an asset class in 2025 as artificial intelligence and cloud computing applications continue to grow across major industries. Demand for data center computing capability outpaced supply in 2024, and the asset class is expected to grow at an exponential rate in the coming years. Looking toward 2025, developers can expect to see generative AI continue to drive demand, an emphasis on green data centers, capital expenditure for edge computing remain high, and investor appetite for the asset class overall to remain strong. 

Here’s a closer look at the outlook for data centers in 2025 and beyond, and where your team can expect to find opportunities and challenges: 

How the Data Center Industry Evolved in 2024 

Back in 2024, the data center industry started to come into focus for real estate developers. Even as power supply concerns slowed industry expansion, data center inventory in North America grew 24.4% year-over-year in Q1 of 2024. Data center vacancies decreased across markets, and public cloud providers drove even stronger demand. Notable American markets, including Northern Virginia, Dallas Fort Worth, Chicago, and Silicon Valley, all had major year-over-year increases in market growth. 

Artificial Intelligence (AI) computing needs also led to a rise in demand for innovation in data center technology, especially around rising power density needs. Hyperscale data centers are expected to be increasingly at the center of the conversation around the asset class, as is the continued shift toward edge computing. Energy and sustainability concerns were also top of mind for data center developers in 2024, especially as policy shifts on the state and local level to address potential environmental impacts began to gain traction. Leaders in the industry are exploring a variety of strategies to prioritize data center sustainability, optimize infrastructure, rethink chip design, and collaborate with electricity providers to meet power demands. 

Developers can expect to see trends from 2024, such as a focus on sustainability and shifting infrastructure demands, continue into the next year. You can also expect to see new trends emerging as data center technology evolves to meet industry demands, such as a rising prevalence of edge computing facilities and increased investment in hyperscaler providers. Here’s a deeper dive into the outlook for this burgeoning industry in 2025 and beyond: 

Generative AI Drives New Facility Demands 

AI-driven demand is driving advancements in semiconductor technology, which has led to GPUs becoming more powerful and allowing for higher rack densities. GPU rack densities are currently at 40kW to 140 kW per rack, and future chips are expected to reach 250kW per rack. Higher density, energy-intensive GPUs generate more heat, and developers will need to explore new thermal management strategies to accommodate advancements. The need to keep this tech cool, along with power usage effective (PUE) regulations, means immersion liquid cooling systems may become the standard on new data center developments. 

Sustainability and Green Data Centers 

The impact of data centers on the environment has been a major concern in recent years, and a push for carbon-neutral and energy-efficient infrastructure will continue in 2025 and beyond. Data centers are only expected to represent about 2% of global electricity consumption in 2025, but other power-intensive advancements such as EV car technology, machinery electrification, and increased power consumption in developing countries could also put strain on grids. In addition to high power demands, access to power transmission is essential. Both established power sources and emerging sustainable power sources will therefore see growth in 2025 to keep up with data center development. 

Power requirements for new data center construction are stretching grids, and as a result, many developers are taking a more active role in bringing alternative energy solutions. Green data centers are expected to emerge as attractive assets, pairing high-performance computing with environmentally-conscious operations. Increasing availability and affordability of renewable energy sources, which include wind, geothermal, and solar power, could create market growth opportunities for green data center developers. High initial capital investment requirements are a primary challenge to sustainable data center assets, but eventual cost savings may boost returns. 

Hyperscalers’ Capital Expenditure Will Remain High 

AI demand – in particular generative AI – is driving a surge in hyperscaler plans to build out data center capacity and supply. Deloitte’s State of Generative AI report predicts that as companies see value derived from generative AI, usage will grow and mature. Hyperscalers and cloud providers expect to see capital expenditures remain high through 2025 and 2026. However, large amounts of power will be required for hyperscale developers to succeed, and looking into alternate energy sources, new forms of cooling, and more energy-efficient solutions will be required to realize hyperscaling ambitions.

Edge Data Centers for Low Latency Needs 

Even though generative AI is driving the desire for high-density data center development, the rise of IoT, 5G, and autonomous technologies is expected to drive increased demand for smaller, decentralized edge data centers near end users. Edge data centers are expected to handle the data needs in many sectors such as banking, agriculture, and healthcare. Developers will as a result increasingly look for modular, prefabricated assets that allow for faster deployment and reduce construction timelines. 

Investor Appetite Remains Strong 

Investor appetite for data center assets is expected to remain strong in 2025 and beyond, as demand for data storage remains on the rise, low supply persists due to power shortages, and AI’s popularity stays nascent. JLL is predicting data center investment financing will hit new records in 2025, with “demand geared toward single tenant ground-up construction.” Even with supply constraints and electricity limitations in certain markets, the general financial outlook for this asset class remains strong. 

Data Centers Beyond 2025 

One thing is clear: the data center economy is just getting started. Even though the industry is not without challenges – with power limitations, sustainability concerns, and regulatory restrictions top of mind – the continued rise of AI tools and cloud computing make the asset class a strong investment in 2025. Development firms looking to build data center portfolios should look for markets with power or land availability, and a regulatory environment conducive to new projects. Investing in sustainable technologies to limit the carbon footprint of data center projects will also be a best practice as strain on electric grids and sustainable policy are ongoing obstacles to development. 

Leveraging property technology to facilitate data center development will also be vital for teams who want to remain competitive in this rapidly evolving industry. Modern real estate development software like Northspyre can help developers evaluate new opportunities and ensure complex projects come in on budget and schedule. Northspyre’s end-to-end development management platform uses data automation, analytics, and integrated technology to facilitate your data center development projects. By eliminating the need to manually manage documents in outdated and error-prone spreadsheets, your development team can ensure key project information is documented and visible to relevant stakeholders. When managing projects with complex regulatory compliance, having a complete picture of your project’s financials and timeline can empower better alignment and collaboration, lower risk, and boost overall returns.


Book a demo and learn more about how Northspyre can simplify your path to predictable returns.

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