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Dive brief:
- global data center investment will reach at least $3 trillion over the next five years as construction becomes more expensive and demand stretches resources, according to a report by Moody’s Ratings, a New York City-based financial services firm.
- Hyperscalers will drive double-digit data center capacity growth through at least 2026, which will be a big boon to construction pipelines, the report said, adding that power limitations and construction costs could ultimately delay completion times.
- Despite more expensive builds, financing structures are evolving to support large-scale builds, and some tenants are increasingly willing to share some construction delivery risk to speed completion, the report said.
Diving knowledge:
The report highlights why data centers are among the sites the strongest drivers of US non-residential construction activity.
Indeed, Moody’s said the data center construction boom is still “in its early stages.” Larger hyperscale data centers with capacity levels of more than 300 megawatts will begin coming online this year, increasing capacity exponentially, the report said.
But while projects grow in sizedevelopers are speeding up construction schedules to meet hyperscalers’ drive to shorten speed to market.
This is because more tenants are willing to exempt energy and the availability of essential services from completion requirements and increase their share of risk in the event of unexpected events. According to Moody’s, these changes in risk allocation help speed up construction, as many of these new builds can be delivered late.
global high demand for skilled labor and essential materials do not help.
Miners of copper and rare earth metals and makers of essential cooling and power equipment are cautiously ramping up production to meet data center demand. But the additional output will likely still be insufficient to moderate price increases in 2026, the report said.
This means new data centers will cost more than older facilities located in similar markets, Moody’s said. However, the report does not predict lower demand due to these higher prices.
In Northern Virginia, the world’s largest data center market, rents for hyperscale data centers with more than 4 megawatts of capacity increased to a range of $130 to $190 per kilowatt per month by 2025, up from a range of $110 to $150 by 2024. structures.
Moody’s said more projects allow construction debt to be fully repaid to lenders within long initial lease terms, often exceeding 15 years, thereby reducing credit risk and expanding more access to capital. This change allows developers to move forward with expensive builds despite rising construction delivery costs.
“To balance the uncertainty of a rapidly growing market, an increasing number of new financings are being structured with the ability to pay off their construction debt in full within their initial lease term without any extensions or renewals,” the report said. “This reduces the credit risk of data center project financing compared to data centers that are exposed to lease renewal risk to pay for their development financing.”
Most development capital so far has come from project finance, corporate bank loans, private equity, developer equity or tenant equity, Moody’s said, adding that this trend will continue into 2026.
