Cloud User Demand Sets U.S. Data Center Leasing on Pace for Record Year, According to CBRE
Phoenix Ranks Second for Leasing Activity in First Half of 2018
PHOENIX, ARIZ. – Tight supply in major U.S. data center markets, including Silicon Valley, has led occupiers to expand into Phoenix, which has record levels of data center construction underway, according to CBRE’s latest U.S. Data Center Trends Report. Phoenix has 61.4 megawatts (MW) currently under construction, with more than 120 MW announced for future buildout.
Expansions and new facilities are underway from providers such as CyrusOne, Aligned Data Centers, Iron Mountain and EdgeCore.
Since the first half of 2017, Phoenix has added 46 MW of inventory, making Phoenix the fifth largest data market in the country, with a total inventory of 212.9 MW.
Phoenix recorded 32.5 MW of net absorption in the first half of 2018, second to only Northern Virginia (100 MW) in terms of the most active data center markets. Phoenix is followed by Dallas/Ft. Worth (19.1 MW, Silicon Valley (10.6 MW) and Austin/San Antonio (9.8 MW).
“As new and existing providers look outside of supply-constrained markets, they continue to find the Phoenix market attractive for its strong incentive programs, lower operating costs and favorable climate,” said Mark Krison, Senior Vice President with CBRE’s Phoenix office. “With Phoenix’s inventory growing at a rapid rate, the metro will continue to be able to accommodate the strong demand from hyperscale and enterprise users.”
Demand from large cloud users has set the U.S. data center market on pace to break 2017’s record leasing activity. The market saw more than 177 megawatts (MW) of net absorption in H1 2018, already nearly two-thirds of last year’s annual record net absorption total, despite the delivery of significant new supply.
Other report findings include:
• Strong demand has resulted in more than 474 MW of capacity under development in the primary U.S. markets, nearly 55 percent of which is preleased.
• U.S. data center investment volume reached $7 billion in H1 2018, inclusive of single-asset, portfolio and entity-level transactions.
• H1 2018 investment activity was balanced between transaction types, as opposed to in 2017, when investment was driven by entity-level transactions. Single-asset and portfolio transactions accounted for 48 percent of total volume in H1, compared to only 27 percent in 2017.
• Northern Virginia, Phoenix, Dallas/Ft. Worth, Silicon Valley and Austin/San Antonio saw the most leasing activity in H1 2018.
“We do not expect to see a slowdown in demand from cloud users in the near future, as end-users continue to migrate their IT needs to the cloud to save costs and for added flexibility,” said Pat Lynch, senior managing director, Data Center Solutions, CBRE.
“While 2018 investment volume may not reach 2017’s record setting investment of more than $20 billion, we still expect the investment market to produce strong results, driven by sale/leasebacks from enterprise users, cloud users looking for development partners and a continued influx of new investors into the data center sector,” Mr. Lynch added.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.