Data centers have been one of the real estate sectors least affected by COVID-related issues and the recession, according to CBRE’s North America Data Center 1H20 report.
Remote working, due to COVID 19, reinforced the importance and reliability of data centers and the networks that support them. Additionally, content providers facing increased demand from viewers also drove demand in data centers.
During 1H20, wholesale data centers in primary U.S. markets (Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta) recorded 134.9 megawatts (MW) of net absorption in H1 2020, down by 21% from the same period last year. Northern Virginia accounted for 69% of the total.
New inventory in primary markets grew by 5% or 131.1 MW in H1 2020, bringing the overall footprint of the primary wholesale colocation market to more than 2.7 gigawatts (GW).
Construction pipeline
More than 373 MW of capacity was under construction across primary markets in H1 2020, with Northern Virginia accounting for the lion’s share at 239 MW. More than 100MW has broken ground so far this year, increasing the pipeline of new deliveries.
Of the MW currently under construction in primary markets, 125 MW has been preleased, representing a slight increase from the 112.3 MW of preleasing in 2019.
Rates decreasing
During 1Q20, wholesale colocation asking rates for 250 to 500 kilowatt (kW) requirements dropped 5.8% to an average of $121 per kW/month, compared with $129 in 2019. Increased competition in primary markets, such as Northern Virginia and Dallas, forced the decrease.
“This downward trend is expected to continue with the development of larger, more energy efficient data centers encouraged by tax incentives,” according to CBRE’s report.
Primary markets remain slightly more attractive to occupiers due to lower asking rates, proximity to network connectivity, such as subsea cables and cloud-on ramps, and more under-construction capacity
Secondary market demand
Secondary markets saw a significant year-over-year increase in inventory, though as not as much as primary markets. Demand is growing rapidly, due to increased network strain and a rush by hyperscale cloud providers to increase capacity. Austin/San Antonio led all secondary markets for demand in H1, accounting for 6 MW of absorption—up from 5.3 MW year-over-year.
“It is possible that more activity will spill over into secondary and tertiary markets,” according to CBRE’s report.
Capital markets insights
H12020 saw an increase in asset-level investment activity among less overall transaction activity. Foreign investors accounted for roughly half of all activity, illustrating growing global capital interest in the North American data center market.
Mapletree’s $557 million acquisition of a 10-property, powered shell portfolio from Digital Realty
Digital Realty’s $368 million 49% stake in Seattle’s Westin Building Exchange
Equinix’s $175 million acquisition of three Axtel data centers in Mexico
Landmark Dividend’s $122 million acquisition of PayPal’s 184,000-sf Phoenix Data Center on a sale-leaseback basis
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