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September 29, 2022
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Data Center Real Estate Activity Continues to Grow

9/01/22

This summary of a just-released report from real estate services firm JLL was provided by Amber Schiada, Head of Americas Data Center Research at JLL

Emerging from the pandemic, it’s clear the world of work is adapting to this digital environment, especially as hybrid becomes the new norm for most office workers. Roughly 55% of office workers globally are now working in a hybrid model. Moreover, there is unforeseen growth in personal usage of social media, online gaming and streaming applications. All these changes in the internet ecosystem demand more power capacities, innovative data storage solutions, and internet connectivity, adding to the ever-growing scale of data creation, mobility, and storage needs.

Enterprise organizations continue to invest in cloud infrastructure services, driving momentum within the data center development pipeline. Operators are forecasting their biggest year this year and at least for the next three years as demonstrated through preleasing activities on campuses that are not built yet. Macroeconomic challenges are likely to drive continued operational optimization at the enterprise level, which will in turn drive cloud demand, further
fueling data center growth.

Key trends to watch for in the second half of 2022:

• New data center supply will be impeded by the availability of land and power in many major markets, driving expansion outside the traditional hubs.

• Driven by the historically high volume of preleasing activities U.S. market demand reached 1,087 MW in H1 2022, more than 95% of 2021’s full-year demand.

• Persistent supply chain delays will continue to cause delivery challenges for the next 24 months.

• These delays are resulting in 50+ week intervals for server hardware and labor shortages continue to persist throughout the global manufacturing landscape.

• Enterprise demand for cloud is anticipated to grow exponentially as businesses move from owned assets to either full cloud or hybrid models.

• Globally, annual spending on cloud services reached $178 bil in 2021 compared with $129.5 bil in 2020 and the cloud services sector in 2022 is expected to grow to $200 bil by the end of this year. This is leading to preleasing and increased competition between hyperscale users.

• Sustainability will continue to be a key focus for the sector as net zero carbon mandates proliferate across the public sector.

• Global data center energy consumption reached 190.8 terawatt hours at the end of 2021. Since 2017, hyperscale data centers have nearly doubled their consumption to 87 terawatt hours while traditional data centers have more than halved their power consumption from 70 terawatt hours to 33 terawatt hours. Users of all types are starting to require providers to have a clear strategy around their energy usage and sustainability goals.

• Capital will continue to flow into the sector through private equity and real estate investment.

• Despite interest rate hikes, M&A activity for H1 2022 totaled $24 bil while real estate investors poured more than $2.8 bil into acquisitions of existing assets as well as development sites.

Zeroing in specifically on the Los Angeles data center market, Darren Eades, JLL Managing Director, shares these highlights about the region:

• The LA data center market has extremely limited inventory of high-end, turn-key data hauls.
• New LA data center development is limited by lack of land availability and competition for other uses, such as industrial or studio space.
• Demand for LA data center space remains very strong as users within tech, media, and other digitally-driven enterprises take what available capacity exists in an extremely tight market.





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