Data Center Construction Dented by Permitting, Power Issues

Data center construction down, can nod to power issues/local pushback

The data center construction craze may not be over yet, but headwinds are taking a bite out of the sector for the first time since the start of the pandemic.

Data center capacity under construction was down at the end of the year for the first time since 2020, according to CBRE. There were 5.99 gigawatts under construction at the end of 2025, Bloomberg reported, compared to 6.35 gigawatts at the end of 2024.

The reasons for the construction decline are multifold.

Power and energy supply are one of the biggest issues hindering the sector, as data centers require a boatload of resources, particularly as artificial intelligence continues to tap on demand for the facilities.

Donald Trump went so far as to announce a “rate payer protection pledge” aimed at addressing the high energy consumption of data centers during his State of the Union on Tuesday, demanding major tech companies provide their own power to help lower electricity prices for consumers.

But permitting and zoning issues are flaring up as local opposition to data center projects rise, viewed more as a resource-heavy eyesore than a potential economic catalyst. Northern Virginia, one of the nation’s data center construction hotbeds, saw projects under construction at year’s end fall by 29 percent.

Silicon Valley also saw a sizable drop in active projects, though not every market moved in that direction. Chicago, for instance, saw a staggering 169 percent rise, a development that could be short-lived as Illinois Gov. JB Pritzker seeks to stifle incentives for such projects in his state.

The decline in construction brushes up with an interesting tidbit: a 1.4 percent overall vacancy rate in primary markets at the end of last year, a record low. Builders are being driven to the fringe of where they were looking to develop before.

As data centers remain an asset of much intrigue for developers, narratives on their prospects are diverging.

For instance, spending on data center construction in October was 18.4 percent higher compared to the same time last year and carried the highest year-over-year growth among the major non-residential asset classes, according to a TRD Data analysis of data from the U.S. Census Bureau.

And FMI Corporation recently forecasted a 23 percent uptick in data center construction spending this year, which would push the sector to more than 6 percent of all nonresidential building activity — up sharply from 2 percent in 2023.

— Holden Walter-Warner