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3/24/23
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This report provided by CBRE
Renewable green hydropower availability and some of the lowest power rates in North America attracted data center operators to Washington State last year, according to a new report from CBRE.
Central Washington had 35 megawatts (MW) of net absorption—a measure of net leasing activity—in 2022, an increase of nearly 700% year over year. The annual total ranked eighth for leasing activity among the 18 data center markets tracked by CBRE in its latest North American Data Center Trends Report. A large part of Central Washington’s appeal is the low cost of power. Average power rates range between $0.028 and $0.035 per kW in the rural market, compared to $0.08-$0.09 in Seattle and $0.126-$0.23 in Silicon Valley.
Seattle had 3.6 MW of positive net absorption in 2022, which placed it 15th among the North American data center markets that CBRE tracks. Although activity was down year over year, Seattle’s market is seeing some new entrants such as satellite-to-server operators.
“Better connectivity reduces latency, meaning data can travel faster between markets. This is increasing demand in Seattle from all drivers of the data center sector, including edge users, AI, enterprise, satellite, SaaS, hybrid, 5G and others,” said Jane Blair, first vice president with CBRE Data Center Solutions in Seattle.
Central Washington’s vacancy rate is 6.4%, down from 11.4% at the end of 2021. Seattle ended 2022 with a data center vacancy rate of 12.7%, down from 15.4% a year ago.
Both Central Washington and Seattle benefit from the availability of renewable energy sources. Sixty-five percent of Central Washington’s data center market is fueled by hydropower, with wind making up another 9%. In Seattle, 86% of energy comes from hydropower with an additional 6% attributable to wind and biogas.
“Data center operators and tenants are looking for ways to reduce their carbon footprints, and one of the simplest is to go where renewable energy sources are already in place. The Pacific Northwest is a leader on this front. Another advantage is the region’s availability of water, which is a critical part of data centers’ cooling processes,” added Blair.
Water availability will grow in importance for data center site selection as liquid cooling is preferred for the high-performance chips required to run artificial intelligence applications.
Another tailwind to Washington State’s data center sector is the recent renewal and expansion of the state’s tax abatement program for renovation or construction of qualifying data centers of at least 100k sf. The tax benefits extend to qualifying data centers as well as their tenants.
Additionally, Toptana Technologies is building an indigenous-owned new cable landing station off Washington’s coast. It will provide transpacific network capacity from the Pacific Northwest to the Asia-Pacific and Oceania markets. It will also have terrestrial back-haul connectivity to the I-5 corridor between Seattle and Hillsboro, Oregon, another growing data center market.
National Trends
CBRE’s report found that tight market conditions and escalating energy and construction costs caused primary-market average asking rents to increase 14.5% year-over-year to $137.90 per kW, the first year-over-year increase in pricing since 2017.
The seven primary U.S. data center markets* logged 686.9 MW of net absorption, up nearly 40% year-over-year. Despite a 17% increase in supply, vacancy fell to a record-low 3.2%. Two-thirds of the net absorption occurred in the first half of the year, as power and land constraints in certain markets, as well as construction delays, weighed on activity in H2 2022.
“Data center leasing slowed in the second half of 2022, but this was driven purely by a lack of available space and power constraints,” said Pat Lynch, Executive Managing Director, Global Head of Advisory & Transaction Services, Data Center Solutions, CBRE. “Demand from enterprise users and cloud service providers remains very strong, particularly as companies continue to adopt hybrid work strategies and prioritize private cloud networks.”
*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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