Denver’s popularity among startup founders has made the metro area a top destination for data center operators as primary markets struggle with high power costs and low space availability, according to a new report from JLL.

Denver’s rise in popularity comes as the national data center market navigates imbalanced supply and demand. JLL’s report suggests that secondary markets like Denver are capturing the overflow from primary markets like Northern Virginia that have seen their prices rise by between 20% and 30% year-over-year.

The firm expects this trend to continue throughout 2024 as artificial intelligence adoption drives demand for data centers. At the same time, the report says most of the supply scheduled for delivery in 2023 and 2024 is already pre-leased, which will result in limited options for businesses that aren't yet in the market.

“Denver has become the home for some of the fastest growing tech start-ups in the country which has been a key factor in the growing popularity for data center providers to continue to build out their campuses as well as new competitors joining the market,” JLL’s report says.

Denver has slowly become one of the nation’s top data center markets over the last few years because of the state’s large inventory of available land and relatively cheap electricity costs. This trend has survived despite turbulence in the capital markets and rising interest rates.

Overall, Denver has more than 107.6 megawatts of total data center inventory with another 303.7 MW planned. That puts the metro area ahead of other emerging markets like Boston and Houston, according to JLL data. But Denver is still well behind hot spots like Atlanta and Northern Virginia, which have 390 MW and 3.6 gigawatts of data center space, respectively.

Denver has also seen multiple new providers enter the market, especially in the aerospace and financial services industries. U.S. colocation provider DataBank is building an 11 MW data center in Denver, information technology service company Flexential is building a 5 MW center in Englewood, and QTS has planned to build a 177 MW plant in Thornton.

Going forward, JLL expects the Denver metro to continue growing as the cost of power continues to decline. The city of Aurora inked an incentive agreement with Xcel Energy to lower data center power costs, and power in Denver costs about 6.9 cents per kilowatt-hour, which is down from around 7.2 cents in 2018.