NY Tri-State Region Among Top Markets for Data Center Leasing in First Half of 2022
Real Estate In-Depth | October 26, 2022
NEW YORK—Commercial brokerage firm CBRE reports that the New York Tri-State was one of the top markets for data center leasing activity during the first half of 2022. As a result of robust activity and strong demand, the vacancy rate fell to an all-time low of 9.0%.
“The financial services sector remained the dominant player in the market’s leasing activity, which helped net absorption reach 16.0 MW in the first half of the year,” said Bill Hassan of CBRE’s Data Centers Solutions Group. “To meet the robust demand, major data center operators are adding supply at a rapid pace. In fact, under construction activity hit a 10-year high of 67 MW in H1 2022.”
“Hyperscalers that can provide a distributed computing environment for up to thousands of servers are beginning to look for capacity throughout the region,” continued Jon Meisel of CBRE Data Center Solutions Group.” To meet this demand, the major third-party providers, as well as the large cloud providers, are looking for redevelopments near robust power in this very constrained market.”
According to CBRE’s North America Data Center Trends report, 67 megawatts (MW) of new construction is underway way with notable activity in the New York Tri-State area including DataBank’s new 30 MW facility under development in Orangeburg, in Rockland County at a site sold through CBRE; QTS’s 9 MW data center under construction in East Windsor, NJ; and several facilities throughout the region being developed by Sabey, Digital Realty and CoreSite.
National Data Center 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% increase year-over-year.
Despite the influx of additional capacity, data center vacancy decreased to an average of 3.8% across the seven primary markets in the first half of 2022—down from 10.3% during the same period of 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% to $127.50 per kW) and secondary markets (2.3% to $133.00 per kW). Primary-market vacancy will remain tight for the foreseeable future, as 73% (1,170 MW) of the 1,601.5 MW of the under-construction supply was preleased as of the end of H1 2022.
“Supply chain disruptions and a lack of available power and land in some major markets could delay new construction deliveries over the balance of the year and beyond,” said Pat Lynch, Executive Managing Director, Global Head of Advisory & Transaction Services, Data Center Solutions, CBRE. “As a result, we expect continued rising rents nationally, and more occupiers turning to secondary and tertiary markets to meet their needs. These smaller markets will also continue to benefit from an increase in edge data center deployments, driven by broader adoption of AI, 5G and blockchain technologies.”
Top U.S. Data Center Markets
Northern Virginia remained the most active data center market with net absorption of 269.3 MW—a 281% increase from the first half 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.
Northern Virginia (219.5 MW) accounted for 62% of new primary-market supply delivered in the first half of this year. Other markets with notable supply growth in the first half of the year included Silicon Valley (56.0 MW), Phoenix (37.5 MW), Hillsboro, OR (30.0 MW), and Atlanta (20.0 MW).
The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.