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I had the pleasure of hosting our inaugural kick off webinar entitled "What's Watt – Major Trends in Data Centers and Digital Infrastructure" yesterday. We will be hosting a series of discussions during 2026 focusing on the incredible evolution and proliferation of data centers in the US and beyond, and the unique issues and opportunities that they are.
I was joined yesterday by two fabulous panelists: #Jeffrey Ginsberg, Managing Director at #DigitalBridge and #Robert Montejo, Partner, #Duane Morris who focuses his practice in the data center arena.
Our discussion focused around defining where primary markets and secondary markets in the US are located, what rents and vacancy rates currently exist, what the drivers of development have been and currently are, and what the outlook for 2026 is from our panelists' perspective.
Primary and Secondary Markets – Historically, the primary market areas for data center development have been Northern California (3,500 MW), Phoenix (680 MW), Chicago (690 MW), Northern Virginia (3,450 MW), Atlanta (1,270 MW) and Dallas (860 MW). Secondary markets have developed in Los Angeles, Hillsboro, Oregon, Salt Lake City, Denver, Austin, Houston, Minneapolis, Boston and the New York/Northern NJ/Connecticut markets.
Rental Rates; Vacancy Rates – Currently, but expanding daily, the primary markets accounted for approximately 8,160 Mega Watts (MW) in 2025, up 17.6% from the second half of 2024. Vacancy rates in these primary markets are under 2% with pricing of $250-$500 per kilowatt of power provided.1 Note, these are NOT really real estate prices, rather, pricing is based on the amount of power one is able to provide to the data center, with larger scale developments of over 10 MW getting rental premiums of over 15% above the rates noted above.
By way of example of the increased pace of development, Northern Virginia saw an increase of 80% of its capacity in 2025 with over 2,000 MW coming online in 2025, together with another 538 MW currently under construction with a 2026 delivery date. Construction is estimated at approximately 5,300 MW in the primary markets, a bit down from 2024 construction.
As one would expect, the data center electric load usage has tripled over the last ten years and this usage is estimated to triple again by 2028 according to the US Department of Energy Lawrence Berkeley National Labs.
Historically, the initial growth in datacenters from 2016 through 2021 was driven by the desire/need for cloud computing facilities that were a bit geographically driven with facilities being on the smaller side. Given the relatively recent emergence of Artificial Intelligence, the location and sizing of data center deals has shifted radically to much larger, bigger, more intensive buildings and projects, with more and more over 100 MW hyper-scalers becoming more the rule than the exception.
Key Concerns/Risk: When asked about key concerns, Jeff and Rob indicated that power availability/grid capacity to deliver necessary power to run their operations, capital (given the immense cost of building some of these buildings – e.g., a 1 Giga Watt development potentially costing over $18 Billion to design, build and open) and NIMBYism were the top 3 on their list, followed by water for coolant, city and county desire to accommodate the use and local utility capability to delivery transmission lines when they say they will, being the next tier of concerns. States have begun to respond to citizen concerns about datacenters creating increased water and electric costs and are beginning to consider direct taxation via feed in tariffs on the data center users, requiring users to create their own power on site or requiring them to feed excess power back into the grid. Jeff reminded the audience that having a signed lease with an off taker/user is table stakes for these transactions given the immense size of the overall deal and that often the owners form joint ventures to de-risk their piece of the transaction.
Utilities: We discussed that while #Small Modular Nuclear Reactors (SMRs) are getting a lot of press, for the most part, current development of data centers have not utilized this technology yet. Most data centers are relying on a natural gas-powered energy source which is matched with a solar or wind renewable source with battery storage enabling the facility to have a redundant source of power, some of which can be put back on the regional grid if needed.
Locational Support or NIMBY: Various states and municipalities are becoming more anti-data center in their approach to resource management, permits and consumer costs, and, as such, it behooves the developers to find a way to stay on top of these shifts in desires (e.g., construction and permanent jobs vs. potential drain on resources and cost increases to other consumers). Others, like the federal government who just announced a $50B transaction to provide data centers for the federal government continue to seek ways to expand their involvement in the data center arena.
If this topic is of interest to you, please look for future datacenter discussions in 2026 where we will be focusing attention on financing for data centers – who is lending, where and what are the constraints; Technology that is going into datacenters – switchgear, Indoor Air Quality sensors, cooling devices that are avoiding water usage, etc.; Conversion of existing corporate data centers into newer facilities providing more capabilities; Private Equity Players in the space and what they are doing and looking for by way of returns; Hyper Scalers – who are they and do they own, lease, do both and why.
If you have additional topics you would like to see us explore, feel free to drop me a note at bamolotsky@duanemorris.com and we would be happy to add it to our growing list of things folks are asking for information about.
Duane Morris has a robust industry facing Energy and Environmental Group focused on incentives, regulatory, permitting, financing and development of energy projects and data center projects internationally including renewables, solar, wind, geothermal and power purchase agreements. The data center team has been working in the space for over 9 years on millions of SF on various deals, financings, developments and incentive arrangements. If you have any questions or follow ups, please do not hesitate to contact Brad A. Molotsky, Robert Montejo, Veronica Law, Ben Warden, Brad Thompson, Phil Cha, Shelton Vaughan or the lawyer in the firm whom you normally deal with on other matters.
Footnote
1. Note as there are 1,000 kilo watts in a mega watt (MW), if the facility was 10 MW, this would equal 10,000 kilo watts x on the lower end – $250/kw = $2,500,000. Using some rough math, the 10 MW datacenter would be considered rather modest and contain approximately 4,000 racks in such a facility.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
