CBRE recently issued a report showing how power supplies have not kept pace with data center industry growth worldwide, leading to low vacancies and higher rents even with robust construction activity.
Even with robust near-term market fundamentals, power supply constraints could hinder or postpone development in markets like Frankfurt, Tokyo and Silicon Valley. On the other hand, however, such constraints are driving hyperscale development demand in emerging markets like Charlotte NC, Johannesburg or Mumbai where there is power available – creating increased hyperscale development projects there.
Pat Lynch, Executive Managing Director for CBRE’s Data Centers Solution commented, “Strong demand for data centers is driving an increase in supply,” yet there remain low vacancy rates around the globe – particularly North America where vacancy is at its lowest levels since 2010. While we expect constraints on capacity and development to ease in coming years, they will still pose an ongoing issue to industry. As such, operators and occupiers have expanded into new markets, opening exciting possibilities in next-tier metro areas.”
CBRE’s Global Data Center Report 2023 investigates key variables including inventory levels, vacancy rates, net absorption rates, rental rates and availability in both established and emerging markets in North America, Europe, Asia Pacific and Latin America.
Artificial intelligence has contributed to steady leasing activity despite higher interest rates and economic instability, driving future data center demand.
Lynch predicts that technologies like streaming and multi-cloud solutions will lead to the need for higher performing data centers.
Data center inventory continues to increase across numerous markets where power availability and capacity limitations have not yet stymied new development. Sydney saw inventory increase 32% year-on-year while 19.5% in Northern Virginia, the world’s most prolific data center market.
Even as development progresses, vacancy rates have declined as demand outpaces supply growth. This trend can be seen most clearly in Santiago, Chile where vacancy declined from 11.7% a year prior to 3% by Q1 2023 – while Chicago experienced its biggest reduction of any North American market with inventory increasing 21% while still witnessing decreased vacancies of 6.7% from 8.2% last year.
“Reliable power is a top priority for data center operators, and technological advances will only increase this need in the coming years,” stated Gordon Dolven, director of Americas Data Center Research at CBRE. Despite limited power availability across regions, new development continues across them all; large occupiers are finding it challenging to locate sufficient capacity which has given way to emerging markets with abundant supplies of electricity.