SoCal Data Center Leasing Up 23%

The data center market is growing rapidly, with several markets reporting an increase in leasing activity. In Southern California, data center leasing activity was up 23% in 2018, according to research from CBRE; however, the significant increase still trailing behind surrounding markets, like Phoenix and Las Vegas, which are leading in data center activity. In 2018, Los Angeles had 10.3 megawatts of absorption, but 10.7 megawatts of new capacity came to market, increasing the vacancy rate by 140 basis points to 15.2%. Still, Southern California’s data center market is healthy.

“Data center activity in Southern California in 2018 was largely attributed to a single hyperscale cloud provider who expanded into the market,” Pat Lynch, senior managing director of data center solutions at CBRE, tells GlobeSt.com. “Aside from the marquee new entrant to the market, the absorption and activity was small in scale, typically less than 200 kWs and a result of local enterprises expanding their existing footprints.”

Downtown Los Angeles has been the prominent leader in leasing activity, along with El Segundo and Irvine in Orange County. “Downtown Los Angeles has become the most desirable leasing market in Southern California for network centric users- gaming, technology and telecom companies given its close proximity to One Wilshire, the carrier hotel for the region, which provides great connectivity to the rest of the country,” says Lynch. “Other markets which are popular for data center leasing are El Segundo and Irvine, which provide lower cost alternatives for less network sensitive requirements.”

The market is also dominated by a handful of players. Coresite is the most active operator in the market, particularly in 2018. “Coresite is close to fully leased in their 900 Alameda Facility, LA2, with plans to develop a third data center to the Los Angeles market on adjacent land to its LA2 Facility,” says Lynch. “LA3 is planned for 20 MWs of critical capacity and 180,000 square feet of critical space. Once developed, it will be the largest new development to the market in over 10 years.” However, other providers are growing as well, including Equinix, Cyxtera, and zColo.

In 2019, however, Lynch expects leasing activity to slow but remain positive. “Since the majority of the leasing activity in 2018 was attributed to one single larger user, unless another like group should expand into the market, which is entirely possible, we anticipate leasing rates to return to their normal average run rate of approximately 3 MWs per year of positive absorption,” he says.