In the Headlines
January 8, 2025

Power Constraints May Test Data Center Gains in '25

Law360

Real Estate attorney Susan Booth was featured prominently in a Law360 article exploring data center developments trends in 2024 and previewing what to expect in 2025. Spurred by the recognition of a need for wireless and remote connectivity during the COVID-19 pandemic, combined with the rise of artificial intelligence (AI) technology, cloud-based conferencing programs and products with network connectivity, the number of data centers in the United States has increased significantly in the past couple of years, and the market shows no signs of slowing.

One notable trend is the entrance of private equity into the space; some of the biggest commercial real estate deals in 2024 involved multibillion-dollar investments in data centers and power generation projects. Ms. Booth said she anticipates some of the firms that originally completed take-private acquisitions to now take companies public because of the access to more and cheaper capital.

Despite the growth, however, power availability remains a concern. Big data centers usually require more than 100 megawatts (MW) of energy, enough to power about 80,000 households, and new projects have to work around the increasingly thorny issue of if, when and how an energy source can bring power to a proposed site.

"More and more utility companies are finding it challenging to meet the deadlines and to provide the capacity they promised, at least within the time frames that they initially promised," she said. "Because, it just turns out, as with construction projects, things run behind, the infrastructure takes longer to get in place... There's a lot of navigating that developers have to do with the utility company and their tenants and their capital providers to try and get everyone on the same page."

Another major challenge is state and local regulation, as government leaders express concern about how data centers tax electrical grids and pass ordinances to prevent developers from building in certain areas. Nevertheless, Ms. Booth said, while some markets are retracting, others are opening, indicating the sector's outlook as a whole remains positive.

"I am seeing people exploring opportunities in locations outside what have traditionally been the main data center hubs, in part because some of the other areas are offering tax incentives," she explained. "They have the power available, and so they're encouraging, bringing it in."

READ: Power Constraints May Test Data Center Gains in '25 (Subscription required)

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