Real Estate

Tri-state Data Center Leasing Remained Steady in First Half of 2018

Demand from financial enterprises resulted in positive leasing momentum for data centers in the New York Tri-State region, according to CBRE’s latest U.S. Data Center Trends Report. The market’s 2.5 megawatts (MW) of net absorption brought the vacancy rate down to 14.2 percent.

Steady data center leasing during the first half of the year was the impetus for an uptick in construction activity. Led by Iron Mountain, Digital Realty and QTS, the market’s construction pipeline rose to 16.5 MW. More than 23 percent of this under-construction capacity is preleased—the highest level of preleasing in three years.

“In-market expansions, primarily from financial and healthcare companies, should result in additional absorption for the remainder of 2018 and into the first part of 2019,” said Jonathan Meisel, senior vice president with CBRE’s East Brunswick office. “Traditionally driven by retail colocation activity, the New York Tri-State market captured both smaller wholesale and retail deployments in H1. Amid economic and financial constraints, providers continue to diversify offerings to attract primarily retail with smaller wholesale colocation deployments.”

National Trends

Demand from large cloud users has set the U.S. data center market on pace to break 2017’s record leasing activity. The market saw more than 177 megawatts (MW) of net absorption in H1 2018, already nearly two-thirds of last year’s annual record net absorption total, despite the delivery of significant new supply.

Other report findings include:

  • Strong demand has resulted in more than 474 MW of capacity under development in the primary U.S. markets, nearly 55 percent of which is preleased.
  • U.S. data center investment volume reached $7 billion in H1 2018, inclusive of single-asset, portfolio and entity-level transactions.
  • H1 2018 investment activity was balanced between transaction types, as opposed to in 2017, when investment was driven by entity-level transactions. Single-asset and portfolio transactions accounted for 48 percent of total volume in H1, compared to only 27 percent in 2017.
  • Northern Virginia, Phoenix, Dallas/Ft. Worth, Silicon Valley and Austin/San Antonio saw the most leasing activity in H1 2018.

“We do not expect to see a slowdown in demand from cloud users in the near future, as end-users continue to migrate their IT needs to the cloud to save costs and for added flexibility,” said Pat Lynch, senior managing director, Data Center Solutions, CBRE.

“While 2018 investment volume may not reach 2017’s record setting investment of more than $20 billion, we still expect the investment market to produce strong results, driven by sale/leasebacks from enterprise users, cloud users looking for development partners and a continued influx of new investors into the data center sector,” Lynch added.

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