Silicon Valley Ranks Second for Data Center Leasing Activity in First Half of 2022

Fueled by cloud service providers and a resurgence of enterprise demand, the Silicon Valley data center market had the second most leasing activity in the country in the first half of 2022, with 56.2 MW of net absorption, a sharp increase from the 13 MW in H1 2021, according to a new report from CBRE.

Vacancy in Silicon Valley tightened further in the first half of 2022. At 1.3 percent, Silicon Valley recorded its lowest vacancy of all-time – down from 1.6 percent in H1 2021 and 4.8 percent in H1 2020. The market’s proximity to tech companies and access to independent power supply have attracted strong demand, which grew exponentially when the COVID-19 pandemic increased the use of cloud services.

Inventory grew at a strong pace, with 56 MW of new supply added in H1 2022, but still could not keep up with demand. Silicon Valley had the fifth largest pipeline among North American markets with 100.6 MW under construction, yet 62.2 percent was already pre-leased.

Only 4.8 MW was available in H1 2022, driving Silicon Valley rental rates to $150-$175 kW/mo – the highest in North America.

“Despite changes in the tech workforce and market headwinds, demand continues to outpace supply. The pandemic accelerated cloud adoption by several years, putting pressure on an already tight market. Power and land constraints remain a persistent challenge but have led to the optimization of current developments from single-story to multi-story, higher density data centers. With limited supply, pre-leasing has been required for users to fulfill their needs while allowing for build-to-suit flexibility to customize their requirements,” said Bill Dougherty, executive vice president with CBRE’s Data Center Solutions group in the Bay Area.

National Trends

CBRE’s latest North American Data Center Trends Report found that 352.9 megawatts (MW) of new supply went online in the seven primary U.S. data center markets* in the first half of 2022, a 20 percent increase year-over-year.

Despite the influx of additional capacity, data center vacancy decreased to an average of 3.8 percent across the seven primary markets in H1 2022—down from 10.3 percent in H1 2021—as large cloud users raced to secure space to accommodate anticipated future growth. Significant preleasing of space under construction in prior years also contributed to the large drop in vacancy.

For the first time since 2017, tight market conditions caused average asking rents to increase in both primary markets (5.9 percent to $127.50 per kW) and secondary markets (2.3 percent to $133.00 per kW). Primary-market vacancy will remain tight for the foreseeable future, as 73 percent (1,170 MW) of the 1,601.5 MW of the under-construction supply was preleased as of the end of H1 2022.

Top U.S. Data Center Markets

Northern Virginia remained the most active data center market with net absorption of 269.3 MW—a 281 percent increase from H1 2021—and more than quadruple that of Silicon Valley, the next highest market. Net absorption totaled 453.4 MW across the seven primary markets in the first half of 2022, nearly triple that of the first half of 2021.

Top 10 Most Active Markets

Northern Virginia (219.5 MW) accounted for 62 percent of new primary-market supply delivered in H1 2022. Other markets with notable supply growth in the first half of the year included Silicon Valley (56.0 MW), Phoenix (37.5 MW), Hillsboro, Ore. (30.0 MW), and Atlanta (20.0 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.