Landlords continue to gain the upper hand in the data center leasing market, as a new report found data center rents soared in 2024, and its authors see that trend continuing.

Colocation data center rents jumped 12% year-over-year in 2024, according to a JLL report published this week.

The increase continues a trend of rapidly rising prices for tenants signing new leases over the past 24 months, with rents climbing at a compound annual growth rate of 11% since 2020. Additionally, sweeteners like tenant improvement and right of first offer clauses that used to be commonplace in data center leases are now rarely on the table.

“Tenants renewing five-year leases are experiencing significant sticker shock, facing up to 50% rent increases, and landlord concessions are becoming increasingly rare in this tight market,” JLL Head of U.S. Data Center Research Andrew Batson said.

The growing leverage being exercised by data center landlords in lease negotiations represents a significant shift in the power dynamics of an industry where tenants have traditionally had the upper hand. That dynamic has occurred because only a handful of credit-grade tech giants, like Amazon, Microsoft and Google have driven the bulk of demand for large blocks of capacity.

But the market’s recent tilt toward landlords reflects a data center leasing environment in which demand is outpacing supply.

Colocation vacancy in North America declined to a new all-time low of 2.6%, down from 3.7% a year ago and close to 10% from 2020, according to JLL, despite several years of record construction.

In high-demand markets like Northern Virginia, Atlanta and Northern California, vacancy rates sit near 1%. And most new data center capacity continues to be preleased long before it hits the market.

This supply and demand dynamic plays a primary role in driving up data center rents, but it’s not the only factor, according to Andy Cvengros, JLL’s executive managing director and co-lead for U.S. data center markets. He also pointed to rising development costs, particularly a nearly 20% price increase on construction materials, and high costs for critical equipment like generators and switchgear that still face supply chain constraints.

“You’ve had inflationary conditions over the past two years, the cost to buy land has gone up significantly, if not doubled, for data centers, and the cost to bring power to sites has gone up significantly and is more difficult to do,” Cvengros said. “Everything to build these facilities is getting more expensive.”

Demand and rent growth have been particularly strong for large blocks of capacity, with hyperscalers looking to lease entire data halls and providers like Digital Realty, CyrusOne and Vantage focusing on that segment of the market, according to Cvengros. Smaller leases under 1 megawatt saw a slower pace of rent growth due to a smaller pool of demand.

While the industry’s 12% rent increase represents a slowdown compared to the stratospheric 18% rent spike the market experienced two years ago, according to Batson, both he and Cvengros expect rents to continue climbing in the coming months — even as the supply of new capacity hitting the market increases.

There is a widespread belief that upward pressure on rents will continue across the industry, Cvengros said, with some data center providers considering turning down opportunities to lease capacity in the hope that it can be leased at a higher rate in the near-term future.

“Some of the operators have expressed interest in waiting to sign leases, where they’re saying, ‘What if we just delay this two or three months to see how high rents are going?’” Cvengros said. “I don't necessarily see that as a good strategy, but we continue to see pressure on rents moving upwards.”