Data Center Market Shatters Leasing Records
North American data center leasing reached record levels last year, driven by demand from large cloud service providers and social media companies, reported CBRE, Dallas.
The CBRE North American Data Center Trends report said the seven primary U.S. data center markets–northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta–absorbed 493 megawatts in 2021, a 31 percent increase over 2019’s then-record level and up 50 percent from 2020. (Unlike other commercial real estate sectors, data centers are benchmarked by megawatts consumed rather than by square feet. A megawatt powers 4,000 servers.)
Despite a 17 percent year-over-year increase in primary-market inventory, vacancy fell to just 7.2 percent last year, the report said. But occupiers in need of data center capacity should see more options this year with more than 727 MW of facilities under construction, CBRE noted.
“We expect continued strong data center demand from cloud service providers and social media companies in 2022 as these firms race to build out their digital infrastructure to support demand for cloud services and metaverse and other digital communities,” said Pat Lynch, Executive Managing Director of Data Center Solutions with CBRE. “We also anticipate increased appetite for highly connected co-location space from enterprise users and pricing increases and longer lead times for available capacity in certain markets due to power constraints and supply chain challenges.”
Northern Virginia remained the most active data center market with net absorption exceeding 303 MW in 2021–more than four times that of the second-most-active market, Atlanta.
Northern Virginia also has the largest under-construction pipeline at 239 MW. Other markets with significant data center construction underway include Hillsboro, Ore. with 234.8 MW, Atlanta with 160.5 MW, Silicon Valley with 94.6 MW and Phoenix with 85.5 MW.
CBRE noted come looming data center-sector challenges. “Rising interest rates could weigh on cap rates and constrain providers reliant on debt financing,” the report said. “[And] pressure is growing to limit the environmental impact of data centers and older facilities could face headwinds as users seek the latest sustainable technologies to increase reliability and efficiency.” But the firm expressed optimism for the near future, “as vacancy rates remain low in most markets amid robust demand from users of all types.”
The U.S. data center sector flourished in 2021: year-over-year, primary data center markets cumulatively logged a 50 percent increase in net absorption, a 17 percent increase in total supply and a 195 percent surge in capacity under construction. Cloud providers and social media companies powered much of this growth to support their expanding digital infrastructures.
Challenges loom. Rising interest rates could weigh on cap rates and constrain providers reliant on debt financing. Pressure is growing to limit the environmental impact of data centers, and older facilities could face headwinds as users seek the latest sustainable technologies to increase reliability and efficiency. Nonetheless, the outlook for 2022 is bright as vacancy rates remain low in most markets amid robust demand from users of all types.
