CBRE: Financial Services Industry Demand for Data Centers Remains Robust

The good news: The tri-state New York/New Jersey was one of the top markets for data center leasing activity in the first half of 2022, according to CBRE’s North America Data Center Trends report.

Due to robust activity and strong demand, CBRE said the vacancy rate fell to an all-time low of 9% in the first six months of the year.

Bill Hassan of CBRE’s Data Centers Solutions Group said the field was trending.

“The financial services sector remained the dominant player in the market’s leasing activity, driving net absorption to 16MW in the first half of the year,” he said. . “To meet the high demand, major data center operators are adding supply at a rapid pace. In fact, construction activity hit a 10-year high of 67 MW in the first half of 2022.”

According to CBRE’s report, 67 megawatts of new construction is underway, with notable activity in the New York tri-state area, including DataBank’s new 30 MW facility under development in Orangeburg, New York, on a site sold by CBRE; QTS’ 9MW data center under construction in East Windsor; and several facilities throughout the region being developed by Sabey, Digital Realty and CoreSite.

CBRE’s Jon Meisel said the potential is there.

“Hyperscalers capable of providing a distributed computing environment for thousands of servers are beginning to look for capacity across the region,” he said. “To meet this demand, major third-party vendors as well as large cloud providers are looking for redevelopments close to rugged power in this very constrained market.”

The bad news: the region still has a long way to go to compete with the country’s major markets.

Northern Virginia was by far the leader, with 269.3 MW of net absorption, followed by Dallas and Silicon Valley. The New York/New Jersey area ranked No. 6 overall.

CBRE’s latest North American Data Center Trends Report found that 352.9 MW of new supply came online across the top seven US data center markets in the first half of 2022, an increase of 20 % year over year.

Despite the influx of additional capacity, the data center vacancy rate declined to an average of 3.8% across the seven major markets in the first half of 2022, from 10.3% in the first half of 2021, as heavy cloud users rushed to secure the space to meet expected future growth.

Significant pre-lettings of space under construction in previous years also contributed to the sharp drop in vacancy. For the first time since 2017, tight market conditions led to an increase in average asking rents in the primary markets (5.9%, to $127.50 per kilowatt) and in the secondary markets (2.3%, to $133 per kW). Vacancy on the primary market will remain tight for the foreseeable future, as 73% (1,170 MW) of the 1,601.5 MW of supply under construction was pre-released at the end of the first half of 2022.

Pat Lynch, executive managing director, global head of advisory and transaction services, Data Center Solutions at CBRE, said the rent figure will continue to rise.

“Supply chain disruptions and lack of power and available land in some major markets could delay new build deliveries through the rest of the year and beyond,” he said. “As a result, we expect national rents to continue to rise and more occupiers to look to secondary and tertiary markets to meet their needs.”

“These smaller markets will also continue to benefit from an increase in edge data center deployments, driven by wider adoption of AI, 5G and blockchain technologies.”

Stephen V. Lee