Silicon Valley Ranks Seventh for North American Data Center Leasing in 2023

Silicon Valley was among the top 10 most active data center markets in terms of leasing activity, even amid power constraints and high rental rates, according to CBRE’s latest North American Data Center Trend Report.

Silicon Valley had 25.7 megawatts (MW) of total absorption – a measure of net leasing activity – in 2023, down from 62.4 MW in 2022. The annual total ranked seventh for data center leasing among the 18 data center markets tracked by CBRE. Despite lower leasing activity last year, rental rates remained the highest on average at $155-250 per kW/month, outpacing the national average of $163.44 per kW/month.

“Power constraints, rising power costs and project delays have buoyed rents. Growing demand in artificial intelligence and proximity to Silicon Valley’s large tech companies has led providers to expand their search in the Valley for power-ready development opportunities,” said Jerry Inguagiato, senior vice president at CBRE.

Silicon Valley had 133 MW under construction in H2 2023, up from 125 MW in H1 2023. Power constraints have affected the long-term delivery of new capacity, which has led more operators to secure space early. Seventy percent of construction was pre-leased in H2 2023 including EdgeCore’s 72 MW, two-building campus and STACK’s 60 MW facility.

Meanwhile, Silicon Valley inventory grew by 48.1 MW year-over-year, totaling 427.7 megawatts (MW) in H2 2023. Vacancy was 7.3% at the end of 2023, up from 2.3% in 2022. Older and smaller second-generation data suites became available as occupants adopted cloud computing or chose more efficient and newly built deliveries.

“Even though vacancy increased in the second half of last year, operators and developers welcome the new supply for redevelopment or leasing opportunities in a severely power and land constrained market,” Inguagiato continued.

In H2 2023, Silicon Valley’s power rate was $0.126-$0.26, nearly double the rates in the eight primary U.S. data center markets.* Silicon Valley Power, the electric utility owned and operated by the City of Santa Clara, implemented a 10% rate increase beginning January 1, 2024. The rate increase will cover the rising costs of producing, purchasing and transmitting power as well as rising equipment and material costs. Despite the price increase, the utility provider’s rates remain among the lowest in California.

National Trends

Supply in the eight primary U.S. data center markets grew by 26%, totaling 5,174.1 megawatts (MW), and vacancy remained near a record low at 3.7%.

Data center construction reached a new high in H2 2023 with 3,077.8 MW under construction in primary markets, a 46% increase from the same time last year (2,109.2 MW). Project delays and demand for AI has led to an increase in pre-leasing activity. To that end, 83% (2,553.1 MW) of under construction supply is already pre-leased.

While supply chain disruptions have eased, construction costs are rising due to ongoing shortages in critical materials like generators, chillers and transformers. That trend is likely to persist throughout the year. Power constraints are creating opportunities for emerging data center markets in Nevada, Indiana and Wisconsin to host large data center facilities.

“The U.S. data center market saw the largest pricing increase of all commercial real estate assets last year, which is a testament to the market’s resiliency and impact of robust requirements for available power,” said Pat Lynch, executive managing director for CBRE’s Data Centers Solutions. “There is no sign that demand will slow down as the economy becomes more digital and artificial intelligence expands to new sectors. More operators and developers are prioritizing decisions that allow them to provide high value, technologically advanced spaces, which will help to drive future demand.”

Top 10 Most Active 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.