Leasing Activity in Southern California’s Data Center Market Driven by Increased Demand for Hyperscale Space

Southern California recorded 14.2 MW of net absorption – a measure of leasing activity – in 2022, an increase of 85.6% from 2021, according to a new CBRE report.

At the end of 2022, there were 24.5 MW of data center inventory under construction as developers raced to support demand from cloud service providers. Over 95% (23.6 MW) of the space currently under construction has been preleased, putting additional pressure on developers to find opportunities in the suburbs as development opportunities are limited in the downtown core.

Southern California recorded 145.7 MW of total capacity in 2022. The vacancy rate remains nearly unchanged since last year (18.3%) but is still one of the highest among the data centers markets tracked by CBRE.

“While Southern California data center market has traditionally been dominated by enterprise users, the emergence of large hyperscale users has fueled the need for significant development across the region,” said Pat Lynch, Executive Managing Director, Global Head of Advisory & Transaction Services, Data Center Solutions, CBRE. “We anticipate data absorption will continue to increase as new product goes online in the coming months."

National Trends

CBRE’s latest North American Data Center Trends 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 megawatts (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 Lynch. “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.”

Top Data Center Markets

Northern Virginia remained the most active data center market with net absorption of 436.9 MW, with the market’s vacancy rate falling to under 1%, despite significant power constraints.

Top 10 Most Active Markets

Northern Virginia (371.5 MW) accounted for 65% of new primary-market supply delivered in 2022. Other markets with notable supply growth included Silicon Valley (66.0 MW), Hillsboro, Ore. (59.0 MW), Toronto (44.0 MW) and Phoenix (37.5 MW).

To view the full 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.