When the world seems built on digital and data, someone is going to need more data processing, and that means data centers. Amazon is signing up—no surprise given that all their businesses, including such profit drivers as online advertising and cloud computing services are driven by data.
Reports have been coming out that industrial owners and developers are partnering with experts to expand into data centers. And now a new study from CBRE Research says that in the first half of 2022, North America saw a surge leading to record demand in the property type.
“Demand for capacity more than tripled year-over-year in H1 2022 as companies continued to shift toward hybrid cloud environments in a post-pandemic world,” the report read. “Although large hyperscalers [like Google, Meta, and Microsoft] remain the biggest users, the market has seen a resurgence in enterprise demand.”
Enterprises have been moving toward hosted cloud computing for a few reasons. It allows them to treat IT largely as an immediately deductible operating expense rather than as a depreciated capital expense, opening up faster tax breaks. Cloud computing in theory should allow rapid scaling up or down, enabling companies to obtain the amount of capacity they need at a given time rather than overbuilding. Also, pushing computing onto a cloud that supports many clients reduces IT staffing needs.
“Despite a 20% increase in wholesale colocation supply over the past year, developers can barely keep up with demand,” wrote CBRE. “Among primary markets, almost 75% of the 1,456.9 megawatts (MW) of under-construction capacity in H1 is already preleased. In tandem with increased demand, the amount of new supply currently under construction nearly tripled year-over-year in H1.”
But there are fulfillment delays in many markets because of ongoing supply chain issues, labor shortages, and building materials costs. Some critical data center equipment can take a year for delivery.
Demand and lack of supply has pushed up leasing rates in such primary markets as Austin/San Antonio, Houston, Southern California, Seattle, Denver, Charlotte/Raleigh, Minneapolis, Hillsboro, and central Washington. “The average monthly asking rate for a 250- to 500-kW requirement across primary markets increased by 5.9% year-year-year to $127.50 per kW,” said the report. Vacancy rates have also dropped. In northern Virginia, they fell from 8.9% to 1.9%.
This is only likely to continue as new demands for data processing, including 5G cellular service and the many data applications that might make use of it.