REAL ESTATE NEWS

The Southern California data center market has seen demand spike over the past year. Several new projects are either under construction or soon to break ground, with many more in the pipeline, which will nearly double the current inventory.

Darren Eades, managing director at JLL, told GlobeSt.com that demand for AI continues to drive end-user needs for access to more than 25 million people in the region.

"This demand will continue to rise as AI inference evolves and US inventory declines, encouraging further growth in California," Eades said.

California still has headwinds with large-scale data center development due to strict regulations, he added.

"However, cities are realizing the actual benefits of data centers to a community," Eades said.

Significant increases in tax revenues, along with high-paying jobs, allow money to flow back into schools, parks, roads and public/emergency services.

"Data centers create an ecosystem of ancillary industries and boost the local economy by drawing in tech companies, startups and those that require low-latency access to compute," he said.

Utilities such as Southern California Edison (SCE) are focused on supporting data center growth and expect rates to decrease as more data centers share the financial burden of system upgrades and necessary expansion.

However, California is losing development to neighboring states and is evaluating policy adjustments, such as small power plant exemptions, to support larger-scale development and better attract investment in the asset class, according to JLL's North American Data Center Report YE 2025.

The limited availability of this needed product is driving increased interest in powered land opportunities. Development will begin at several new sites in 2026.

For example, Vernon, a 5.2-square-mile industrial city located southeast of downtown Los Angeles, announced it will tap remaining power to try to add additional power.

Utilities are considering competitive rate structures to retain projects to counter regional competition.

In Northern California, PG&E is looking to other submarkets such as East Bay, Sunnyvale, North San Jose, North Bay and Sacramento, because it cannot bring new supply online due to entitlements in areas such as Santa Clara.

Operators are considering a variety of on-site generation options to address power supply and demand imbalances, including which workloads can be deployed in Northern California, while accounting for operational costs.

Source: GlobeSt/ALM