Investment in the U.S. data center sector reached record levels in the first half of 2017—$18.2 billion, more than double that for all of 2016, according to a new report from CBRE. At this pace, investment in the data center sector—which includes all single-asset, portfolio, and entity-level/mergers and acquisition transactions—is on track to surpass the total for the three previous years combined.
“Over the past five years, more than $45 billion of investment capital has flowed into the data center sector, with more than 50 percent of that total occurring since the start of 2016,” says Pat Lynch, senior managing director, data center solutions, at CBRE. “The robust adoption of rapidly evolving, data-intensive technology continues on a strong upward trajectory and will drive growth in the data center sector going forward.”
The seven major U.S. data center markets—Atlanta, Chicago, Dallas/Fort Worth, the New York tri-state region, northern Virginia, Phoenix, and Silicon Valley—combined saw nearly 88 megawatts (MW) of occupancy gains in the first half of 2017.
Northern Virginia in particular remains a strong performer, with net absorption totaling nearly 42 MW in first-half 2017. Northern Virginia is the largest and most active data center market in the world, with its wholesale inventory larger than that of any country in Europe or the Asia Pacific region.
The data center supply pipeline continues to accelerate, with nearly 284 MW of wholesale
capacity currently under construction in the primary data center markets—and 46 percent of that space, 131 MW, already pre-leased. While pre-leasing levels have consistently been in the range of 45 to 65 percent over the past several years, there has been a shift in the past several quarters toward speculative development as a result of sustained demand for data center services.
“In particular, hyperscale CSPs [cloud service providers] are more openly sharing their expansion goals with data center providers to encourage speculative development, as speed-to-market is often a critical factor driving these deployments,” Lynch says.
Northern Virginia remains the most active development market, with more than ten new projects representing 119 MW of wholesale capacity in the pipeline as of the end of June. Other markets with significant construction activity include Dallas/Fort Worth, with 47 MW; Chicago, 41 MW; Silicon Valley, 30 MW; and Phoenix, 28 MW.
