Data Centers Hit Record Absorption
Northern Virginia continues to outperform other data center markets, racking up more than half of all U.S. leasing in 2018, according to a new report from CBRE.
Pat Lynch, Senior Managing Director, Data Center Solutions, CBRE
The seven largest U.S. data center markets saw 303 MW of net absorption in 2018, which was more than 16 percent higher than in 2017, which had itself set a record. Total absorption in 2018 thus nearly equaled the 322 MW of capacity added last year, according to the latest U.S. Data Center Trends Report from CBRE, released on Tuesday, March 12.
Northern Virginia, the world’s single largest data center market, accounted for 58 percent of net absorption among the primary markets.
“We are closely watching supply and demand trends across the U.S. data center market in 2019 and beyond, particularly as data consumption—driven by the adoption of big-data analytics, 5G, gaming, streaming services, edge computing and the internet of things—continues to drive growth,” Pat Lynch, senior managing director, Data Center Solutions, CBRE, said in a prepared statement.
Kristina Metzger, Senior Vice President, CBRE Data Center Capital Markets
On the development side, more than 500 MW of capacity is under way in the primary U.S. markets, versus 228 MW at the end of 2017. Northern Virginia accounts for two-thirds of current data center construction, primarily due to demand from cloud users. With 336.9 MW under construction, Northern Virginia’s pipeline is larger than the existing inventory of any U.S. data center market.
North American data center investment volume reached $12 billion in 2018. While this was down from 2017’s record $20 billion, this was largely due to limited entity-level investment opportunities compared to 2017, according to CBRE.
“Demand for data center investment has never been greater as aggressive foreign capital, institutional investors and infrastructure funds have started targeting the asset class,” Kristina Metzger, San Diego-based senior vice president, CBRE Data Center Capital Markets, said in the prepared statement. “As many of these groups enter the data center space, they are not only targeting direct investments, but also joint ventures, recapitalizations, and the outright purchase of data center operating companies.”
More investment, more density
In November, Commercial Property Executive interviewed Lee Kestler, chief commercial officer at Vantage Data Centers, about the current state and likely near future of the data center sector.
Among the challenges, he said, is that it has taken time for the investment community to understand the data center market. “However, investors have come to understand that we … are developing purpose-built premium real estate—with costs well above the typical commercial office building costs per square foot—and we are experiencing stable and healthy demand.”
An important trend that Kestler sees developing through 2019 is higher-density data center facilities. “[W]ith annual global data consumption in the zettabytes and land costs rising in key market areas, the time is right to consider building up, not just out. Data centers are all about power and cooling, and high-density facilities allow you to maximize the use of both.”
Images courtesy of CBRE
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