‘No End in Sight’: Cloud, AI Drive Data Center Demand

Data center demand is having its heyday, if new data from Synergy Research Group and real estate firm JLL are on target.

Not surprisingly, cloud and AI services are driving the growth.

Last year, the data center sector recovered from its 2023 lull, according to new insights from Synergy. As such, associated M&A blew past the $50 billion mark, reaching $57 billion. That number easily surpassed previous records, Synergy analysts said.

Prior to 2024, 2022 stood out as the peak year for data center M&A, with activity totaling $52 billion. But 2023’s value dropped by half, partly because the previous year featured the two largest agreements ever seen in the industry, each valued at $11 billion or more, per Synergy. Sifting out mega-deals of $2 billion or more would show a different pattern: 

Part of last year’s higher data center M&A figures tied to two separate equity investments in Vantage Data Centers. Combined, the value amounted to $9.2 billion, Synergy said. Other large deals came from equity investments in EdgeConneX and DataBank. Notably, private equity interest in data centers has soared since 2020. That year, private equity made up 54% of the value of all closed deals; that percentage rose to 65% in 2021 and now remains in the 80-90% range, according to Synergy.

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Synergy's John Dinsdale

“There has been a tremendous increase in the demand for data center capacity, driven by cloud services, social networking, and a range of both consumer and enterprise digital services,” said John Dinsdale, a chief analyst at Synergy Research Group. “There is no end in sight to this trend, with generative AI technology and services adding a further boost to already strong demand.”

Indeed, Dinsdale added, when assessing pending deals and sales pipelines, “there is plenty of evidence to suggest that 2025 will be another boom year for data center M&A.”

‘Phenomenal’ Data Center Demand

JLL agrees.

Organizations’ hunger for AI points to data center demand growing at a “phenomenal pace” in 2025, the real estate investment company asserts in its new report, “2025 Global Data Center Outlook.”

Similar to Synergy, JLL predicts investor appetite for data centers to stay strong this year, with much of the reason coming down to excitement around AI’s potential. 

Overall, M&A investment volume and mega-mergers probably will slow, JLL said. However, the company expects an increase in joint ventures in 2025, especially in developing countries where investors will partner with regional groups to navigate local political, regulatory and business landscapes.

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Along the way, data center operators must pay great attention to running infrastructure that balances computing power with sustainability, JLL said.

“The pace of AI innovation is not slowing down, and the data center industry must continue to adapt,” said Jonathan Kinsey, JLL EMEA lead and global chair, data centre solutions. “AI’s transformative power demands have already reshaped our world, yet its most significant and enduring effect may lie in how we rise to meet the substantial energy demands required to fuel this technological revolution. The results will fundamentally reshape data center design and operation.”

Across the hyperscale and colocation segments, an estimated 10 GW is projected to break ground globally in 2025, while 7 GW likely will reach completion, JLL found in its report. Based on that pace of under-construction and planned developments, the global data center market looks to expand at a baseline 15% compound annual growth rate through 2027 — with the potential to reach 20%, per JLL. 

Meanwhile, despite the excitement around AI, traditional, lower-intensity workloads such as data storage and cloud applications will comprise most data center demand for the next several years, JLL found. Even “optimistic adoption scenarios” suggest that AI will represent less than 50% of data center demand in 2030, JLL said in its report.