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Silicon Valley Sees Sixth-Most Data Center Leasing in North America in H1 2020

9/16/20

This report was provided by CBRE

Driven by demand from cloud service providers, Silicon Valley tied for the sixth-most data center leasing activity in North America in the first half of 2020, according to CBRE’s latest North American Data Center Trends Report.

Silicon Valley saw 7.3 megawatts (MW) of net absorption in H1 2020, down 43% from the same period a year earlier. Despite 29.8 MW of new capacity added since the end of H1 2019, Silicon Valley’s vacancy rate dropped 60 basis points year-over-year. At 4.8%, it’s the second-lowest among primary and secondary markets.

“While data center leasing is down from this time last year, several enterprise and hyperscale requirements are set to close by year-end that will bring us in line with historical absorption. We have seen a slowdown in demand from technology and enterprise companies in favor of lower-cost data center markets in the West, but our development pipeline is proof that players continue to see value in being in Silicon Valley,” said Jennie Karnes, Vice President, Data Center Solutions, CBRE.

Silicon Valley will add a significant amount of capacity over the next 24 months with several new developments scheduled to deliver their initial phases. The market has 24.6 MW currently under construction.

National Trends

The North American data center sector was resilient in the first half of 2020 as many businesses implemented hybrid IT infrastructure to improve their remote work capabilities and streaming content providers saw increased viewership due to the COVID-19 pandemic.

The seven primary U.S. data center markets saw 134.9 megawatts (MW) of net absorption in H1 2020—down from record levels in the first halves of 2019 and 2018, but still higher than the same period in 2017 and 2016. The vacancy rate in the primary markets dropped 70 basis points year-over-year to 10.3 percent despite a 5 percent growth in inventory during H1. The decline in net absorption in H1 2020 was largely due to increased supply.

“The economic slowdown will force companies to scrutinize every dollar of their IT spending, but continued investment in mission-critical IT infrastructure like data centers and cloud services will be imperative to supporting business continuity and remote working,” said Pat Lynch, Senior Managing Director, Data Center Solutions, CBRE. “The outperformance of data center REITs compared to other public real estate securities so far in 2020 has brought new investor interest to the sector, which will likely result in increased development activity.”

Top North American Data Center Markets

Northern Virginia remained the most active data center market, with net absorption of 93.2 MW in H1 2020.

Top 10 Most-Active Markets:

Market H1 2020 Absorption Market H1 2020 Absorption

Northern Virginia 93.2 MW Silicon Valley 7.3 MW
Toronto 35.7 MW Chicago 7.3 MW
Central Washington 13.9 MW Phoenix 6.0 MW
Dallas-Fort Worth 12.2 MW Austin/San Antonio 6.0 MW
Atlanta 7.8 MW Montreal 5.5 MW

Strong demand over the past several years has resulted in a 373.6-MW data center construction pipeline in the primary markets, a third of which has been pre-leased. Northern Virginia accounts for 64 percent (239 MW) of the construction pipeline in the primary markets.

Other markets with significant construction pipelines include Montreal (55 MW), Central Washington (43.7 MW), Atlanta (28.5 MW) and Phoenix (28.1 MW).

*The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.





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