Data Center Construction Starts Hit $98.5B as Office Loans Sour

Two property markets moving in opposite directions

Commercial real estate in the U.S. is now two separate markets. One is building data centers faster than at any point on record, and the cost of each project keeps rising. The other is still cleaning up office loans written when interest rates were much lower. ConstructConnect's monthly Data Center Report shows the first market most clearly. Mortgage delinquency data and REIT earnings from late October show how far apart the two have drifted.

ConstructConnect's October report counts $98.5 billion in U.S. data center construction starts from January through August 2026, spread across 153 projects. August by itself added $14.4 billion from 17 projects.19 Data centers made up 24% of all nonresidential building starts the firm tracked through August.20 The largest August start was AVAIO Digital's campus in Little Rock, Arkansas, a site of nearly 300 acres valued at $6 billion.20

That total comes from a year that started with records. January starts were the largest monthly figure since ConstructConnect began tracking in 2020. The month included two $10 billion developments.12 By June, year-to-date spending was $81.5 billion, already more than ConstructConnect's full-year 2025 total.11

Costs are rising faster than buildings are growing

The more important change may be in what each project costs. In 2026 to date, the average project with a known price and size costs $1.18 billion and covers 707,000 square feet. In 2025 the averages were $507.4 million and 493,000 square feet.20 So spending per project has more than doubled while floor area grew about 43%. Developers are putting more equipment, power and cooling into every square foot.20

The trimmed figures, which drop the top and bottom 10% of projects, tell the same story with fewer outliers. The median is $541 per square foot and the average is $867, and individual projects range from under $300 to more than $2,200.20 ConstructConnect's July analysis put the five-year compound annual growth in costs at 17% for the median and 22% for the average.11 The firm has suggested that bigger buildings may be developers' attempt to get economies of scale and lower the cost of each unit of compute.11

Those costs fall on someone. Construction-industry analysts have asked who carries the risk on fixed-price contracts. Large power transformers now take 30 to 36 months to arrive, up from 12 to 18 months before the shortage, and their prices are 75% to 77% higher than in 2019.19 This is analysis rather than reported fact, but a contractor that bid a campus at last year's prices could have its margin wiped out by one late equipment delivery.

The geography has moved inland, and the pipeline points south

This year's starts have moved away from the coasts. Four of the five states between Wisconsin and Ohio have each logged $10 billion or more, and Texas alone has passed $22 billion.20 Earlier ConstructConnect reports named North Carolina, Indiana, Illinois and Michigan as states above $10 billion by midyear, with Virginia and Texas close behind.11 The firm ties this pattern to where power and water are available. It has also reported that power infrastructure starts are up 4% year to date compared with last year's record.11

The figure that should get the most attention is the near-term pipeline. ConstructConnect now tracks 65 projects worth $26.1 billion with start dates before year-end. A month earlier it tracked 85 projects worth roughly $78 billion.1911 Texas holds more than $11 billion of what remains. The Midwest, which drove so much of 2026's activity, accounts for only 1.5%.20 Every forecast also leaves out Project Kestrel, a planned $100 billion development that ConstructConnect tracks separately because of its size.11

Commentators read the drop differently. One trade analysis says it could mean the rush is pausing, or simply that most of 2026's projects have already broken ground.20 The second reading is more likely. Many projects that were scheduled have moved from the pipeline into the starts column. Even so, a smaller pool of projects ready to start means that 2027 growth will depend more on new announcements than on work already queued up.

The data also needs a caution. ConstructConnect revises its numbers, and the figures change from report to report. January starts were first reported at $25.2 billion and later at $25.5 billion.1211 Full-year 2025 appeared as $77.7 billion in February and $72.5 billion by July.1411 These are starts measured with the firm's own method, not total industry spending.18 Readers should treat individual monthly numbers as estimates that may change, while the overall direction is clear.

The office side of the ledger

Office lending looks very different. The Mortgage Bankers Association reported on October 27 that commercial mortgage delinquencies rose in the third quarter. Office had the highest rates of any property type, and CMBS had the highest rates among lender types.2 The share of CMBS balances 30 or more days late rose to 4.97% from 4.82%. Life insurers rose to 1.33%, and GSE portfolios rose to 1.16%.2 MBA chief economist Mike Fratantoni pointed to weak fundamentals in multifamily and office, plus higher interest rates. He added that delinquencies remain historically low for most lender types.1

Other measures show much more stress. Trepp data cited by The Real Deal put about 8% of CMBS loans, roughly $49 billion, more than 30 days late, with special servicers holding $69.5 billion. That is the highest level since the financial crisis.6 For office loans in CMBS specifically, the delinquency rate reached 12.2% in September. Only January 2026 was higher, and the rate is about 1.5 percentage points above the worst of the financial crisis.8 The MBA and Trepp figures cover different loan pools and use different methods, so they do not contradict each other.7 The MBA figure is better for judging whether the system is stable. The Trepp figure better shows where losses are concentrated.

One example: a $1.1 billion loan on Hollywood office and film-studio properties, with Netflix and 20th Century Fox as major tenants, went into maturity default after it matured in August. Lease renewals there are still unresolved.8 The approach that has kept many troubled loans going, known as extend and pretend, appears to be fading. Trepp expects lenders to grant fewer extensions, which would lead to more realized distress.10 Trepp estimates about $800 billion in commercial real estate loans comes due this year and $733.2 billion in 2027.10 With the 10-year Treasury near 5%, refinancing that debt costs much more than the original loans did.7

Office fundamentals are healing, which complicates the picture

Office demand itself is no longer falling. CBRE reports national vacancy at 18.2%, its fifth straight quarterly decline. Prime office vacancy is 11.9%, and Midtown Manhattan's prime vacancy is 1.9%.33 Colliers puts vacancy at 17.7% and Cushman & Wakefield at 19.8%. All three report the same direction, even though their methods give different levels.3631 New office construction is at record lows, according to CBRE.33 That limits new supply as tenants compete for the best buildings.

The gap between healing demand and rising defaults is the main point. The buildings themselves are often occupied and usable. The distress comes from the prices paid and the debt taken on in a low-rate era.8 Older, lower-quality buildings are leaving the market through conversion or demolition, which lowers vacancy rates partly by shrinking the inventory.39

What the REITs are signaling

Public REITs show the same split. Equinix reported 11% revenue growth to $2.571 billion on October 28, along with annualized gross bookings up 35%. It raised its full-year guidance and said it expects to deliver nearly 40% more cabinets than originally planned.46 Digital Realty reported third-quarter revenue up 21% from a year earlier and a signed-but-not-commenced backlog of $2.5 billion. It raised its 2026 Core FFO outlook.50 Its new leases take an average of 17 months to commence.50 That delay helps explain why construction starts and REIT earnings may stay strong well after new demand begins to cool.

These companies are also spending heavily. Equinix plans capital expenditures of $5 billion to $6 billion this year and expects leverage to rise over time.44 Valuations reflect years of expected AI-driven growth, which leaves the stocks unusually exposed if hyperscaler spending slows.48

The reading

The best reading of ConstructConnect's numbers is that data centers have become the main driver of U.S. nonresidential construction, a sector large enough to set prices for transformers, labor and capital. Office has moved from a demand crisis to a debt problem. Lenders still have to absorb those losses even as leasing improves. In data centers, the near-term risk is costs and power equipment, not demand. The shrinking pipeline is worth watching closely over the next two reports. If announcements fail to refill it while costs keep climbing at double-digit rates, lenders who see office as the problem could find their next test in data centers.