CBRE Report: Silicon Valley is Nation’s Tightest Data Center Market

Despite adding 21.5 megawatts (MW) of capacity in 2021, Silicon Valley is the nation’s tightest market for data centers with a vacancy rate of just 1.6%, according to a new report from CBRE. Vacancy declined from 2.3% a year earlier due to persistent demand from cloud service providers for additional data storage capacity.

Only 5 MW are available across all of Silicon Valley, which is the third-largest data center market in North America with 313.6 MW of total inventory. Net leasing activity was down 3.3 MW year-over-year as a lack of supply inhibited companies’ ability to lease space.

“A lack of available land, power constraints and formidable competition from alternative uses for redevelopment sites are the main factors preventing additional data center development in Silicon Valley. We may see denser development with a diverse mix of uses that result in more vertical, multi-story construction in the future to offset the limited developable land available,” said Jerry Inguagiato, a senior vice president with CBRE’s Data Center Solutions group in the Bay Area.

Developers purchased 12 land sites in Silicon Valley for data center development in 2021, compared with 11 transactions in the previous three years combined. Silicon Valley has 94.6 MW under construction, the fourth largest pipeline among North American markets, yet almost 76% of the space is already pre-leased.

“Silicon Valley has added data center capacity at a relatively strong pace, but it is still not enough to keep up with demand. More autonomous vehicles, 5G infrastructure, blockchain technology, and the build out of digital communities like the metaverse all point toward an increased need for data center real estate in the year ahead,” said Jennie Karnes, a vice president with CBRE’s Data Center Solutions group in the Bay Area.

Low vacancy is pushing rents higher. Silicon Valley currently has the highest rental rates among North America’s primary data center markets, averaging between $135-$150 kW per month.

National Trends

CBRE’s latest North American Data Center Trends Report shows that there was 493.4 MW of net absorption in the seven primary U.S. data center markets in 2021, a 31% increase over 2019’s then-record level, and up 50% from 2020.

Despite a 17% year-over-year increase in primary-market inventory, vacancy fell to just 7.2%. Occupiers in need of data center capacity in markets with low vacancy should see more options in 2022 with 727.6 MW of facilities under construction. However, 44% of this space has been preleased.

Top U.S. Data Center Markets

Northern Virginia remained the most active data center market with net absorption of 303.3 MW in 2021 – more than four times that of Atlanta, the second-most-active market.

                                                       Top 10 Most Active Markets

Market	2021 Net Absorption	Market	2021 Net Absorption
Northern Virginia	303.3 MW	Silicon Valley	23.3 MW
Atlanta	70.4 MW	Hillsboro	21.2 MW
Phoenix	29.8 MW	New York Tri-State	10.5 MW
Dallas/Ft. Worth	28.6 MW	Denver	8.0 MW
Chicago	27.4 MW	Southern California	7.7 MW

Looking ahead, Northern Virginia has the largest under-construction pipeline, at 239 MW. Other markets with significant construction under way include Hillsboro, Oregon (234.8 MW); Atlanta (160.5 MW); Silicon Valley (94.6 MW); Phoenix (85.5 MW); and Dallas/Ft. Worth (75.8 MW).

To download the report, click here.

*The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.