Silicon Valley, Northern Virginia and Chicago are experiencing the biggest outbreaks.
A new report from CBRE finds that interest rates in the North American data center market are nearing their 2010-2011 peak, with strong demand outpacing supply growth.
It is now common for tenants to pre-rent their space, typically 18 to 36 months in advance, much faster than previously, when 6 to 12 months was common.
Average asking rents have increased by 20% over the past 8 54% in months.
New capital sources and investments are expected to push rents down, according to CBRE.
“However, power constraints are slowing new construction and are the biggest obstacle to expanding the supply of data centers. This has intensified competition to lease existing data centers and kept rents high.” the report states.
A record 3,077.8 MW is under construction in the primary market, an increase of 46% since H1 2023.
Despite the construction boom, the vacancy rate has been declining since 2021. In the second half of 2023, vacancy rates in the New York Tri-State, Seattle, Central Washington, and Chicago hit record lows.
Andy Quvenglos, JLL’s managing director of data center markets, told GlobeSt.com that prices are rising for all size requirements, but especially for medium-sized (1-10MW) requirements as large hyperscalers. He said it was the fastest rise in the past three years. It has absorbed almost all large spaces in key markets across the country.
“With most markets experiencing a lack of vacancy, the price of available capacity is rising even faster in the next 12 months,” says Cvengros. “Given the insatiable demand for capacity and limited supply, it is difficult to predict how rental price increases will impact users.”
Lisa DeKnight, managing director of national industry research at Newmark, said the cycle of rent increases is likely to occur in secondary and tertiary markets as well, given that rising DC requirements are spilling over into secondary markets. It is likely that this will continue.
“Bargaining power is in favor of landlords because overall availability is so low,” she said. “Tenants can and will pay. The world’s top hyperscalers, the big companies that absorb data center space, have the world’s largest market capitalizations and have average capital expenditure budgets of ¥25,000 this year. It is predicted to increase by %.”
Howard Berry, principal of National Data Center Solutions at Avison Young, told GlobeSt.com that recent trends have seen data center asking rents steadily increase due to increased demand for data storage and processing power. he said.
“Vacant and old outdated data centers have been sitting on the market for years and being picked up by AI operators, leaving tenants with not many options,” Berry said.
“This trend is impacting the data center industry, prompting landlords to take advantage of the growing market, while tenants face rising data center lease costs, impacting overall operating costs. There is a possibility.”
Heather Wyckoff, a partner at Schulte Roth & Zabel, told GlobeSt.com that executives are increasingly interested in creating funds that invest solely in data centers, a relatively new asset class that real estate funds should focus on. Ta.
“We expect to see a significant increase in funding directed towards this area,” she said.
