data center
Real Estate

Data Center Market Experiences Robust Demand from Cloud Providers

Vacancy in Tri-State Data Centers Falls to All-Time Low; Heath Care and Financial Services Firms Lead Absorption of Turnkey Data Space

Driven by increased demand from cloud providers as well as health care and financial services companies, the New York Tri-State region saw data center vacancy drop to an all-time low of 8.8%, according to CBRE’s latest North American Data Center Trends Report.

According to the report, the market saw 3.3 megawatts (MW) of net absorption in 2020, down from the nearly 9.0 MW recorded during 2019. New construction underway will add 23.6 MW of capacity, bringing much needed supply to the market’s total inventory, which stood at149.1 MW at the end of 2020.

“The Tri-State market turn-key data center capacity is nearing historic lows fueled by social media companies, as well as more traditional users like health care and financial services companies. The lack of supply is reaching dire levels in terms of accommodating ongoing expansions, not to mention attracting new users to our market,” said CBRE’s Jon Meisel.

CBRE’s William Hassan added, “Many companies are reevaluating their digital requirements and have prioritized the importance of data centers. In fact, a large NYC health care provider leased approximately 750 kilowatts (kW) in Piscataway, New Jersey, while a major social media company that committed to space earlier this year is now looking to expand.”

On the capital markets front, activity has remained consistent both for sale-leaseback and net-lease opportunities, according to the CBRE report.

National Trends

Data centers, one of the fastest growing real estate sectors pre-pandemic, remained strong in 2020 as businesses reconfigured their digital infrastructure to improve their remote work capabilities, and tech giants and cloud service providers raced to meet consumer and corporate demand, according to CBRE.

The firm’s latest report shows 329.6 MW of net absorption in 2020 across the seven primary U.S. data center markets: Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta. While down 11% from the peak in 2019, 2020 absorption was still higher than any other year on record. Meanwhile, vacancy fell to just 8.5%, despite an 11% growth in new supply.

“With data usage growing at an explosive rate, we expect data center demand to increase across both primary and secondary markets in 2021,” said Pat Lynch, senior managing director, Data Center Solutions, CBRE. “To capitalize on this growth, data center providers will look to deliver network and interconnection offerings to better connect business-critical applications, as well as to meet anticipated demand for evolving technologies like 5G, Edge computing and the internet of things—all of which will further fuel the data center real estate market.”

Top North American Data Center Markets

Market 2020 Absorption Market 2020 Absorption
Northern Virginia 217.2 MW Phoenix 17.5 MW
Toronto 38.1 MW Central Washington 14.5 MW
Dallas-Fort Worth 33.7 MW Chicago 13.1 MW
Silicon Valley 26.6 MW Montreal 11.0 MW
Atlanta 18.2 MW Seattle 6.9 MW

Strong demand and an uptick in investor interest in direct investment due to the strong performance of data center REITs in 2020 resulted in a 457.8-MW data center construction pipeline in the primary markets, up 62% from the end of 2019. More than half of the current pipeline is pre-leased.

The markets with the most data center space underway include Northern Virginia (283.5 MW), Montreal (57 MW), Silicon Valley (50.1 MW), Central Washington (43.7 MW), Hillsboro, Oregon (40.5 MW), and Chicago (33.7 MW).

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