Data Centers Seeing Strong Growth
Data centers had a fantastic first half of 2021, with strong absorption delayed only by a lack of supply, reported Cushman & Wakefield, Chicago.
The seven largest U.S. data center markets– Dallas, northern Virginia, Silicon Valley, Chicago, Atlanta, Phoenix and Portland, Ore.–reported 241 megawatts of data center absorption between January and June. Unlike most commercial real estate sectors, data centers are benchmarked by megawatts consumed rather than by square feet. A megawatt powers 4,000 servers.
There are currently 1.22 gigawatts of data center space under construction, the Cushman & Wakefield Americas Data Center Update reported. “The focus [is] overwhelmingly on larger builds for hyperscale usage, with 200 MW underway in northern Virginia, Silicon Valley, Chicago and Atlanta, with self-builds for Microsoft, Amazon and Facebook featuring prominently in phased build-out or in planning,” the report said.
Cushman called the 1.2 GW currently under construction “just the beginning” for large-scale projects nationwide, citing another 3.3 GW in the serious planning phase, with sites acquired or optioned and waiting on an initial tenant to sign on before launching.
“Land availability remains tight in northern Virginia, with the boundaries of Data Center Alley continuing to expand as few immediately suitable sites remain in northern Virginia for rapid buildout,” the report said. “Several sites are being marketed or are under offer in Santa Clara, with this key Silicon Valley neighborhood trading for over $6 million per acre of late as existing buildings are repositioned for data center use.”
Mergers and acquisitions and large portfolio acquisitions continued throughout the first half of the year as capital “flooded” into the data center arena, the report said. The recently renamed DigitalBridge paid nearly $1 billion for the Landmark Dividend data center portfolio with assets in primary, secondary and tertiary locations. Mapletree Industrial Trust paid $1.32 billion for Sila Realty Trust’s remaining data center assets and Switch acquired Data Foundry’s assets for $420 million.
“All of these were overshadowed by a buyout signed for in June, with Blackstone agreeing to take QTS private for $10 billion including debt, with the real estate investment trust a key player in ten U.S. markets and holding considerable expansion land,” the report said. “Individual assets received strong bidding, with cap rates in the high-3 and mid-4 range becoming commonplace as many large private equity, pension and infrastructure funds continue to receive mandates to enter the sector and often prefer operational assets to assuming development risk.”
Cushman said it expects demand to remain “consistently healthy” as enterprises and government agencies alike move to the cloud or structure their hybrid IT strategies. “Power remains largely available in primary markets, with local utilities not only adding further capacity but increasingly sourcing renewables for operators and tenants,” the report said. “Expect further M&A and construction starts throughout the rest of 2021 and into next year as the data center market continues its red-hot pace.”
