Data Center Leasing Rises 40% To Record Level, Sending Vacancy To Record Low


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North American data center leasing hit a new high as vacancy fell to a record low last year, but constraints on building new data center capacity could hamper the sector’s continued growth, according to a recent report from CBRE.

CBRE’s latest North American Data Center Trends Report found that tight market conditions and escalating energy and construction costs caused primary-market average asking rents to increase 14.5% year over year to $137.90 per kW — the first year-over-year increase in pricing since 2017.

The seven primary U.S. data center markets — Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta — logged 686.9 megawatts (MW) of net absorption, up nearly 40% year over year. Despite a 17% increase in supply, vacancy fell to a record-low 3.2%.  

Two-thirds of the net absorption occurred in the first half of 2022, while power and land constraints and construction delays slowed leasing activity in the second half.

“Data center leasing slowed in the second half of 2022, but this was driven purely by a lack of available space and power constraints,” said Pat Lynch, executive managing director and global head of Advisory and Transaction Services, Data Center Solutions for CBRE. “Demand from enterprise users and cloud service providers remains very strong, particularly as companies continue to adopt hybrid work strategies and prioritize cloud networks.”

Power Constraints Impact Markets

Northern Virginia remained the most active data center market with net absorption of 436.9 MW. The market’s vacancy rate fell to less than 1% despite significant power constraints.

“Northern Virginia has challenges with power availability over the next few years,” said Gordon Dolven, director of Americas Data Center Research for CBRE. “Atlanta, for example, has more than 1 gigawatt of planned capacity in the works, with new data center operators entering the market and competing with industrial developers for available land.”

Nationally, data center construction costs are at an all-time high because of escalating energy and material prices. Data center operators are raising rates to remain competitive.

CBRE provides the following outlook on data centers:

  • The pace of digital transformation is expected to continue increasing as companies adapt to a hybrid workforce. Private cloud and private 5G networks are a priority for Fortune 500 companies.
  • Companies are looking for ways to reduce emissions to meet carbon reduction mandates, but supply chain delays and power complications may adversely affect this. CBRE expects data center operators to expand into markets where renewables are heavily used for electricity supply.
  • Environmental considerations likely will continue to impact site selection. CBRE expects more companies to source and generate renewable energy adjacent to data center facilities.
  • Prices are expected to continue rising in the first half of this year because of power constraints.
  • Date center occupiers’ power requirements will grow, leading to larger lease deals in 2023. Power supply constraints will be the biggest impediment to new development in some primary markets like Northern Virginia and Silicon Valley, resulting in hyperscale demand growth in secondary markets with cheaper land, greater power supply and favorable tax incentives.

 

 

 

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