Across the United States, data centers are reporting heightened demand. While data center demand was largely accelerated by the COVID-19 pandemic, a national data center report from CBRE found that there has still been a large increase in data usage throughout 2021, which will likely continue throughout 2022.
“Over the last year, there has been continued reliance on digital infrastructure to support a distributed and remote workforce. There has been a huge surge in construction of new data center facilities, as well as expanding current facilities, with a 195 percent year-over-year increase in capacity under construction in primary data center markets. Due to pre-leasing in primary markets, there are more spec developments being delivered to the market,” CBRE Senior Vice President Jennie Karnes said.
According to the report, which analyzed data center trends in the top U.S. markets, 493.4 megawatts of net absorption were recorded across the United States in 2021. This is a 31 percent increase from 2019’s then-record net absorption, and up about 50 percent from 2020. At the same time, CBRE reported a 17 percent year-over-year increase in primary market inventory, with vacancy rates coming in at 7.2 percent nationwide.
Of the top performing markets, CBRE found Silicon Valley to be the tightest market in the United States with a vacancy rate of just 1.6 percent. Currently, just five megawatts are available across all of Silicon Valley, which is the third-largest data center market in North America with 313.6 megawatts of total inventory. Northern Virginia, however, led the way in absorption, accounting for more than 60 percent of the national total data. According to the report, Northern Virginia absorbed 303.3 megawatts of data in 2021.
As demand for data centers surge, prices are also expected to climb in 2022. According to the report, rental rates remained relatively stable throughout 2021, decreasing by 0.4 percent year-over-year to $120 per kilowatt per month. However, as low-vacancy markets continue to face limited supply and accelerated demand, asking rates are expected to increase throughout 2022.
The main drivers of data center demand come from social media companies and cloud providers. However, as technology grows, other sources of data center demand have come from autonomous vehicle technology, 5G infrastructure, virtual reality communities, blockchain technology and cryptocurrency.
Additionally, the report found that more recent moves to sustainability have compelled data center owners and operators to explore new technologies, like fuel-cell energy storage.
“There has been an increased focus on sustainability initiatives (renewable energy/ carbon neutral commitments) in new data center site selection which will likely drive the need to bring on new sustainable power sources, even at a potential increase in cost,” Karnes said.
Construction of new data centers will help bring new supply to the market. However, CBRE suggests that progress will be slow moving forward as space tends to be taken up immediately. Currently, there are 727.6 megawatts of facilities under construction, but 44 percent has already been pre-leased.
Northern Virginia continues to lead the way in new construction, with 239 megawatts under construction. Northern Virginia is followed closely by Hillsboro, Oregon, which has nearly 235 megawatts under construction. However, areas with less available land, like Silicon Valley, are struggling to up current supply. According to the report, Silicon Valley’s under construction inventory totals 94.6 megawatts.
Despite these challenges, new leases will continue to be signed as demand in the sector continues to climb. Single-tenant occupiers will continue to see growing requirements for more space as well. These large-scale requirements likely will remain driven by cloud service providers and social media companies.
“Supply chain delays are impacting delivery of critical infrastructure required to provide new capacity and the completion of customer installations,” Karnes said. “…There is also scarcity of land in key data center markets such as Northern Virginia, Silicon Valley, Los Angeles and Phoenix.”