Orange County Partnership - News

U.S. Data Center Market Showing Resiliency and Investor Interest Despite Pandemic

Commercial brokerage firm CBRE issued a report on Aug. 27 that detailed the strength and resiliency of the U.S. Data Center market, which has been bolstered by the need for business continuity as well as the increase in remote working and content streaming due to COVID-19.


The CBRE Data Center Trends Report noted that the North American data center sector was strong in the first half of 2020 as many businesses implemented hybrid IT infrastructure to improve their remote work capabilities and streaming content providers saw increased viewership due to the COVID-19 pandemic.


The seven primary U.S. data center markets saw 134.9 megawatts (MW) of net absorption in the first half of 2020—down from record levels in the first halves of 2019 and 2018, but still higher than the same period in 2017 and 2016.


The vacancy rate in the primary markets dropped 70 basis points year-over-year to 10.3% despite a 5% growth in inventory during the first half of this year. The decline in net absorption in the first six months of 2020 was largely due to increased supply.


The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.


“The economic slowdown will force companies to scrutinize every dollar of their IT spending, but continued investment in mission-critical IT infrastructure like data centers and cloud services will be imperative to supporting business continuity and remote working,” said Pat Lynch, Senior Managing Director, Data Center Solutions, CBRE.


He continued, “The outperformance of data center REITs compared to other public real estate securities so far in 2020 has brought new investor interest to the sector, which will likely result in increased development activity.”


Northern Virginia remained the most active data center market, with net absorption of 93.2 MW in H1 2020.


The Canadian data center market also had a strong first half of the year, with net absorption in Toronto exceeding, and Montreal on par with, H2 2019 levels, when CBRE Research began tracking these markets.


The 10 most active markets in the first half of 2020 were:


Market                                    First Half of 2020 Absorption


Northern Virginia                  93.2 MW

Toronto                                  35.7 MW

Central Wash.                        13.9 MW

Dallas Fort Worth                  12.2 MW

Atlanta                                    7.8 MW

Silicon Valley                         7.3 MW

Chicago                                  7.3 MW

Phoenix                                  6.0 MW

Austin, San Antonio              6.0 MW

Montreal                                 5.5 MW


Strong demand over the past several years has resulted in a 373.6-MW data center construction pipeline in the primary markets, a third of which has been pre-leased. Northern Virginia accounts for 64% (239 MW) of the construction pipeline in the primary markets.


Other markets with significant construction pipelines include Montreal (55 MW), Central Washington (43.7 MW), Atlanta (28.5 MW) and Phoenix (28.1 MW).