SoCal Data Center Activity Up for 1H18
Data center activity totaled 5.2 megawatts in the first half of the year, and research shows the market is poised for more growth.
“Recent absorption in Southern California can almost entirely be attributed to a global cloud provider that expanded into the region,” Kristina Metzger, first VP at CBRE, tells GlobeSt.com. “The other transactions of note consisted primarily of existing end-users expanding and select local enterprises moving out of their current office environments into third-party, outsourced models, predominantly colocation.”
While data center activity is growing across the country, the Los Angeles market is among the leaders. “The Los Angeles Multi-Tenant Data Center market will remain among the top 10 markets in the United States,” adds Metzger. “We expect demand and absorption to return to historic averages in the 3% growth range as operators continue to expand their existing customers and select, small local enterprises move to outsourcing models.”
As a result of the demand, the supply is rapidly growing. In Los Angeles, 16 megawatts of inventory has been added to the market since 2017, bringing the market total to 104.4 megawatts. As a result, the vacancy rate has increase by 250 basis points to 18.8%. “There will always be a need for data center capacity in the Southern California market given the sheer size of the population, diverse economy and connectivity to the Asia Pacific Region,” Metzger says. “Demand from technology, entertainment and healthcare companies in this region is particularly strong. While the growth rates are nowhere near the likes of Northern Virginia, Phoenix or Atlanta, Los Angeles continues to grow, albeit at a more modest rate.”
Despite the strong absorption and construction activity both in Los Angeles and nationally, pricing trends did not keep pace with 2017 numbers.“ Competition from other states has had an impact on the demand and historical absorption in Southern California,” says Metzger. “There are less large requirements for Southern California than other regions of the United States, which benefit from lower power costs and taxes. As such, the competition for large, one-off new acquisitions has risen and local operators have become increasingly competitive in their offerings. As several providers have some MWs of capacity available, we anticipate this trend to continue.”