Record Demand Fuels H1 2022 Surge in North American Data Center Development

The North American data center market remains red hot. Demand for capacity more than tripled year-over-year in H1 2022 as companies continued to shift toward hybrid cloud environments in a post-pandemic world. Although large hyperscalers remain the biggest users, the market has seen a resurgence in enterprise demand.

Figure 1: H1 2022 Wholesale Primary Market Fundamentals

*Vacancy Y-o-Y changes are calculated by comparing the difference between H1 2022 and H1 2021.
**Rental rates are quoted asking rates for 250+ kW at N+1/Tier III requirements.
Source: CBRE Research, CBRE Data Center Solutions, H1 2022.

Figure 2: H1 2022 Wholesale Secondary Market Fundamentals

*Vacancy Y-o-Y changes are calculated by comparing the difference between H1 2022 and H1 2021.
**Rental rates are quoted asking rates for 250+ kW at N+1/Tier III requirements.
Source: CBRE Research, CBRE Data Center Solutions, H1 2022.

Despite a 20% increase in wholesale colocation supply over the past year, developers can barely keep up with demand. Among primary markets, almost 75% of the 1,456.9 megawatts (MW) of under-construction capacity in H1 is already preleased. In tandem with increased demand, the amount of new supply currently under construction nearly tripled year-over-year in H1.

However, many markets are experiencing delays in new deliveries due to continued supply chain disruptions and high costs for building materials. Securing critical data center equipment like network switches can take a year or more, further exacerbating the supply/demand imbalance and leading to increased pricing.

Figure 3: Net Absorption vs. Under Construction by Primary Market, H1 2022

Source: CBRE Research, CBRE Data Center Solutions, H1 2022.

Figure 4: Net Absorption vs. Under Construction by Secondary Market, H1 2022

Source: CBRE Research, CBRE Data Center Solutions, H1 2022.

Vacancy rates fell from a year ago in all seven primary markets in H1. Northern Virginia, the world’s largest data center market, saw its vacancy rate plunge to just 1.9% from 8.9%. Many markets are beginning to expand their geographic range for new developments due to few available land sites in their core areas. The Northern Virginia market, for example, is expanding north into Maryland and south to Culpepper, VA. Similarly, Silicon Valley developers are pushing northward from San Jose to Fremont and the East Bay area.

Today’s unprecedented demand is pushing up lease rates in the few areas where there is vacant space. The average monthly asking rate for a 250- to 500-kW requirement across primary markets increased by 5.9% year-year-year to $127.50 per kW.

Figure 5: Average Asking Rental Rate with Y-o-Y % Change for Primary Markets

Source: CBRE Research, CBRE Data Center Solutions, H1 2022.

Coming soon: For more insights on the state of the data center sector in key markets across the U.S. and Canada, including investment activity, supply and demand changes, current industry trends and more, watch for CBRE’s North America Data Center Trends H1 2022 report, releasing next month.