Tri-State Data Center Market’s Low Vacancy Rate

On Mar 13, 2019

According to CBRE’s latest U.S. Data Center Report, the New York Tri-State data center market experienced positive absorption in 2018. Demand from enterprise activity focused on retail and smaller colocation deployments resulted in nearly 4 MW (megawatts) of positive net absorption. As a result, the market posted its lowest vacancy rate in five years at just 13.5 percent.

“Despite a limited number of municipalities that offer incentives and the higher power costs, the New York Tri-State region, with its immense population base, boasts low-latency and world-class connectivity, two major factors in the market’s continued attraction to users, particularly in the financial and health-care sectors,” says Jonathan Meisel, senior vice president, CBRE. “Demand from organic expansion should continue in 2019 and will be met with strategic capacity deployments from providers.”

For the New York Tri-State region, supply and demand are nearing equilibrium with more than 8 MW currently under construction. According to the report, the high cost of operations in the market’s urban areas have led to expansions in other submarkets, such as Orangeburg, New York.

National Trends

The seven primary U.S. data center markets saw 303 MW of net absorption in 2018, up more than 16 percent from 2017’s then-record total. That absorption nearly eclipsed the 322 MW of capacity added last year. Northern Virginia, the largest data center market in the world, accounted for 58 percent of net absorption in 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,” says Pat Lynch, senior managing director, Data Center Solutions, CBRE. “Meanwhile, we’ve seen robust construction activity as operators try to position themselves to rapidly deliver facilities within users’ often-tight schedules.”

Strong demand has resulted in more than 500 MW of capacity under development in the primary U.S. markets, up significantly from the 228 MW underway at the end of 2017. Northern Virginia accounts for two-thirds of the current construction activity, primarily due to large requirements 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.

Capital Investment Trends

North American data center investment volume reached $12 billion in 2018, inclusive of single-asset, portfolio and entity-level transactions. While investment was down from 2017’s record-setting $20 billion, this was largely due to limited North American entity-level investment opportunities compared to 2017.

“The data center market will continue to evolve and adapt to the demands of today and tomorrow,” Lynch adds. “We expect to see a continued influx of capital into the sector from new investors and infrastructure funds seeking to diversify their portfolios, as well as increased investment and expansion in global regions previously untapped by providers and cloud users.”

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