By Barbra Murray (MultiHousingNews.com Article) —
CBRE has released its North American Data Center Report H2 2019, and the results bode well for the sector’s ongoing success. Subtitled Hybrid IT: Here to Stay, the report notes that the increasing popularity of hybrid IT—the combination of cloud services, third-party colocation and owned, on-premises infrastructure—continues to bolster the market.
“Enterprises continue to adopt hybrid IT strategies, encompassing colocation footprints that allow multi-cloud access for the variety of cloud services they need to run their respective businesses,” Pat Lynch, senior managing director in CBRE’s Data Center Solutions group, told Commercial Property Executive. With large enterprise and cloud users seeking more accommodations, North American data center leasing and construction deliveries rose to new heights in the U.S. in 2019.
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Examining the nation’s seven primary U.S. wholesale data center markets—Atlanta, Chicago, Dallas/Fort Worth, New York Tri-State, Northern Virginia, Phoenix and Silicon Valley—net absorption reached a record 396.4 megawatts. The figure marks a whopping 33 percent increase over the record-high net absorption recorded in 2018. Northern Virginia, the world’s largest data center real estate market, led the way with 254.6 MW of absorption, or 64 percent of the total among the seven leading markets. “When you look at the sheer size of Northern Virginia in comparison to any other data center market in the world, it’s surprising that there doesn’t appear to be any slowdown in supply or demand,” said Lynch. “In a normal real estate cycle at some point you see saturation. We don’t appear to be anywhere near that in Northern Virginia.”
DATA CENTER GROWTH
Construction completions across the seven primary markets also went on the rise, as inventory grew by a record 488.7 MW for a 23 percent increase over 2018. Expansions by cloud service providers, the large amount of capacity of the new deliveries and acquisitions of enterprise data centers were responsible for the massive jump in inventory. Northern Virginia, again, was at the forefront with 340.2 MW in new deliveries in the second half of 2019 for a total inventory of 1,200.4 MW. Dallas/Fort Worth was a distant second, having recorded a year-over-year product increase of 20.7 MW in H2 2019, resulting in a total inventory of 321.4 MW. And Silicon Valley came in third, as a 34.4 MW increase in product pushed the market’s total inventory up to 290 MW.
DATA CENTER OUTLOOK 2020
Despite its robust performance, the North American data center market did experience a couple of statistical declines. In the seven primary markets, under construction capacity dropped to a total of 282.7 MW at the end of 2019, marking a dramatic reduction from the 502 MW under construction at the close of 2018. Additionally, average rental rates for wholesale collocation decreased, albeit only slightly. Rental rates in primary markets averaged between $115 and $139 in 2019, compared with the average range of $121 to $141 recorded in 2018.
Regardless of declines in construction activity and rental rates, the data center sector is on track for yet another fruitful year, even amid concerns of an economic slowdown or possible recession. “The creation of and demand for data continues to grow,” Lynch said. “Long term, we believe that high-quality, interconnected and well-located data center assets are in some ways recession-proof.”