The WPJ
Cloud Computing Driving Record Data Center Leasing Activity in 2018

Cloud Computing Driving Record Data Center Leasing Activity in 2018

Commercial News » Dallas Edition | By Michael Gerrity | August 31, 2018 8:45 AM ET



According to CBRE's latest U.S. Data Center Trends Report, 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. In Northern Virginia, the sector's largest market in the in the U.S. (and the world), cloud users accounted for 65 percent of the market's net absorption.

"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. 

Top U.S. Data Center Markets

Northern Virginia remained the most active data center market, with net absorption of 100 MW in H1 2018.

Rounding out the top 10 most active markets:

  • Phoenix (32.5 MW)
  • Dallas/Ft. Worth (19.1 MW)
  • Silicon Valley (10.6 MW)
  • Austin/San Antonio (9.8 MW)
  • Chicago (9.4 MW)
  • Seattle (6.1 MW)
  • Southern California (5.2 MW)
  • Atlanta (3 MW)
  • New York Tri-State Region (2.5 MW)

Northern Virginia added 198 MW of supply since H1 2017, and will grow larger still, with an additional 297.2 MW under construction as of the end of the first half of the year.

Other markets with significant construction activity include:

  • Phoenix (61.4 MW)
  • Dallas/Ft. Worth (45.6 MW)
  • Silicon Valley (29.5 MW)
  • Atlanta (21 MW)

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. The Silicon Valley vacancy rate fell below 5 percent for the first time, as there is a scarcity of high-quality, available space.

"Tight market conditions in Silicon Valley have forced occupiers to expand into other markets, notably, Phoenix, which has record levels of construction underway," said Mr. Lynch.

Capital Investment

U.S. data center investment volume reached $7 billion in H1 2018, inclusive of single-asset, portfolio and entity-level transactions. H1 2018 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.

"We expect this balance between entity-level and single-asset/portfolio sales to continue as more companies adopt hybrid IT deployment strategies and look to dispose of their enterprise data centers," said Mr. Lynch.

"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," Mr. Lynch added.


Real Estate Listings Showcase

This website uses cookies to improve user experience. By using our website you consent in accordance with our Cookie Policy. Read More