Silicon Valley Adds New Data Center Supply Amid Power Constraints, But Limited Space Keeps Rental Rates Among the Highest in the Country

The Silicon Valley data center market continues to grow, but momentum has slowed in the first half of 2023 due to economic challenges and limited supply, according to a new report from CBRE.

Silicon Valley inventory was 410.7 megawatts (MW) in H1 2023, up 10% year-over-year. Vacancy increased to 6.4% in H1 2023 from 2.3% in H2 2022, but rental rates remain among the highest in the country ($155-$250 kW/mo).

In the first half of the year, Silicon Valley reported 125 MW under construction, up 24.4 MW from H1 2022. Almost 60% of new construction was pre-leased. Meanwhile, more than 30 MW delivered in H1 2023 – all of which was pre-leased. Nationally, companies are leasing space up to 36 months in advance of construction completion.

“While vacancy and inventory increased, Silicon Valley’s data center market remains among the tightest in the country. Power constraints and aging supply in the region severely limit desirable options, keeping asking rental rates high. Newly constructed data centers are quickly pre-leased, underscoring the demand for state-of-the-art facilities,” said Jerry Inguagiato, Senior Vice President at CBRE.

Mr. Inguagiato continued, “Cloud service providers continue to lead demand for new space. There has been some demand from artificial intelligence companies, but these companies are still in their early stages. We anticipate seeing more meaningful demand from AI companies as the sector expands.”

National Trends

CBRE’s latest North American Data Center Trends Report found there is 2,287.6 megawatts (MW) of data center supply currently under construction, reaching a new all-time high with more than 70% already preleased. At the same time last year, there was 1,830.3 MW under construction. In anticipation of future demand and to secure data center space at current pricing, companies are leasing space up to 36 months in advance of construction completion.

Absorption in the eight primary U.S. data center markets remained resilient in H1 2023, totaling 468.8 MW, despite challenges within the supply chain. While supply increased 19.2% year-over-year, vacancy remains near a record low of 3.3%. Strong demand paired with a lack of available power and extended timelines have kept asking rental rates climbing. Average primary market asking rents rose to $147.80 per kW/month from $127.50 (a 15.9% year-over-year increase).

Top Data Center Markets

Northern Virginia remained the most active data center market in the first half of 2023 with 918 MW under construction. The market set a record low vacancy rate of 0.94% while power improvement projects are underway.

Top 10 Most Active Markets

Other market highlights include Dallas -Fort Worth, which saw the greatest year-over-year increase in absorption of 327%, jumping to 110.6 MW from 25.89 MW. Separately, Chicago recorded a 125% spike in under-construction activity - the largest increase among all U.S. data center markets.

To view the full report, click here.

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