Amid the rollout of 5G and ever-increasing digital connectivity throughout the world, commercial real estate investors are diving into data center properties in earnest. Besides companies’ voracious appetite for Big Data fueling this trend, there’s also the fact that new technologies are increasingly housed within the ether of the cloud. That makes physical space a necessity to base the servers that power cloud computing and store the growing gamut of online user data.
And in the world of commercial real estate, data centers are among the most attractive alternative property investments, according to Spencer Levy, chairman for Americas Research at commercial real estate services firm CBRE.
“Data centers may be the star or the biggest growth area within alternatives, and the flexibility and agility within it and real estate is driving the demand for data centers. Transaction volume remains driven by the adoption of hybrid IT, multicloud access strategies by users. Strong demand will continue as users right-size and adapt their portfolios to handle current and future technologies, such as high-performance computing and 5G,” Levy noted in a recent CBRE presentation.
WORTH NOTING: Data centers are measured in megawatts (MW) in addition to square feet of space. A megawatt is defined as roughly 4000 servers, Dupont Fabros Technology CEO Hossein Fateh said in an interview about the property type this winter.
To accommodate robust demand, about 550 MW in new data centers are being built across the United States and the Asia-Pacific region, according to commercial real estate services firm JLL, with the bulk of that (just over 404 MW) being built within the U.S.
Take a look at the U.S. cities and geographic areas claiming the lion’s share of new data center space.
7. Chicago
Interestingly, Chicago is snagging about 2% of the total inventory of new data centers being built, according to CBRE’s most recent data from midyear 2019.
In its own midyear 2019 report, JLL noted that Chicago has 7 MW under construction representing a total of 42,500 square feet, with an additional 20.5 MW totaling 140,000 square feet in the planning stages. The city’s total data center size is 555 MW spanning nearly 4.3 million square feet as of midyear 2019. “Downward pressure on rents will result in aggressive transactions,” JLL researchers note. An uptick in activity is expected heading into 2020 thanks to new Illinois tax incentives.
6. New York
New York is also pulling in about 2% of the total amount of new data centers currently being built as of midyear 2019, according to CBRE.
JLL’s New York figures show about 30 MW representing 200,000 square feet in the planning stages as of midyear 2019, with the total market sized at 152 MW or roughly 1 million square feet.
“Network, 5G and Internet-of-Things applications continue to drive more small-rack deployments in strategic headend locations in the five NYC boroughs,” JLL researchers wrote. “This will continue to put competitive cost pressure on traditional colocations in Manhattan. Upstate is seeing an industrial transformation of older data centers as new incentives emerge in the industrial space.”
5. Atlanta
In fifth place, the peachy southern city of Atlanta will be home to about 4% of the amount of total data centers inventory currently under construction, per CBRE.
Atlanta is “maturing” as a market for data centers, according to JLL’s researchers, who wrote that, “For the first time in several quarters, new space and power significantly increased Atlanta’s inventory. This new inventory results from multiple providers, which is unprecedented in this market.”
About 12 MW spanning 160,000 square feet is under construction, with 34 MW totaling 197,000 square feet in the planning stages, according to JLL. The market is sized at 230 MW spread out across nearly 1.9 million square feet.
4. Silicon Valley
Approximately 8% of total new data center construction as of midyear 2019 will be based within the Silicon Valley area of California, CBRE has found.
While JLL does not track Silicon Valley in its data center outlook, a Fall 2019 research note from commercial real estate services firm Cushman & Wakefield has tabulated a whopping 164 MW currently under construction in the area. That is despite high land costs, with recent comps showing about $7 million per acre. “Large cloud providers continue to drive interest, both for serving local clientele throughout the Bay Area and for research and development purposes on their own projects,” notes Cushman & Wakefield’s research team.
3. Dallas-Fort Worth
The burgeoning Dallas-Fort Worth (DFW) metro area will also claim about 8% of all new data centers being constructed, CBRE figures show.
Although enterprise businesses account as a dominant demand driver in DFW, “large social media players have been quietly absorbing space in the market at scale,” JLL researchers wrote. “Absorption by traditional enterprises and major social media players in the market signals opportunity for providers.”
Almost 213 MW (about 1.2 million square feet) of data centers are in the planning stages, on top of 24.2 MW representing 117,000 square feet already under construction. The massive market had total inventory of about 527 MW sized at 3.7 million square feet as of midyear 2019.
2. Phoenix
About 16% of new inventory being built will sit within Phoenix, making it the second-most popular city for data center development, according to CBRE’s most recent analysis from midyear 2019.
Phoenix is “primed for another strong year,” and “continues to receive major attention from multiple operators across the country looking to plan their flag in the rapidly growing market,” per JLL researchers. New supply will come online throughout 2020.
About 54.5 MW (measuring 134,630 square feet) is under construction with another 36 MW (measuring 121,300 square feet) planned. The total market spans 270.3 MW or 2.1 million square feet.
1. Northern Virginia
