According to CBRE's latest North America Data Center Trends report, U.S. demand for data centers by the financial services sector and increased activity from cloud service providers throughout the New York Tri-State region drove the market's overall vacancy to an all-time low of just 9.4% in H2 2021.
As a result, data center operators including Coresite, CyrusOne, Sabey and QTS are rapidly adding supply to the depleted inventory.
"While demand by financial services companies continued to drive the market, cloud service providers were also major players in Q4 2021, taking advantage of New York's critical mass of connectivity," said Robert Meyers, a Senior Vice President for the CBRE Data Center Solutions Group. "The data center sector is well positioned for future growth. However, with 34.0 MW of new supply currently under construction, this could begin to affect asking rents, which have remained relatively stable despite a low vacancy rate."
Activity during H2 2021 was almost 100% comprised of expansions by existing data center tenants. One of the largest acquisitions is the planned purchase of DataGryd's entire facility at 60 Hudson Street in New York City by Cordiant Digital.
CBRE's latest North American Data Center Trends Report shows that there was 493.4 megawatts (MW) of net absorption in the seven primary U.S. data center markets in 2021, a 31% increase over 2019's then-record level, and up 50% from 2020.
Despite a 17% year-over-year increase in primary-market inventory, vacancy fell to just 7.2%. Occupiers in need of data center capacity in markets with low vacancy should see more options in 2022 with 727.6 MW of facilities under construction. However, 44% of this space has been preleased.
"We expect continued strong data center demand from cloud service providers and social media companies in 2022, particularly for large-scale, single-tenant facilities, as these firms race to build out metaverse and other digital communities," said Pat Lynch, Executive Managing Director, Data Center Solutions, CBRE. "The continued adoption of autonomous vehicles, 5G infrastructure, and blockchain technology will also further fuel the data center real estate market in 2022 and beyond."
Top U.S. Data Center Markets
Northern Virginia remained the most active data center market with net absorption of 303.3 MW in 2021 - more than four times that of Atlanta, the second-most-active market.
Looking ahead, Northern Virginia has the largest under-construction pipeline, at 239 MW. Other markets with significant construction underway include Hillsboro, Oregon (234.8 MW); Atlanta (160.5 MW); Silicon Valley (94.6 MW); Phoenix (85.5 MW); and Dallas/Ft. Worth (75.8 MW).