Data center vacancy has dropped to a record low. The 1.6% rate posted during the first half came despite a sharp growth in development to 8,155 megawatts, a 43.4% year-over-year rise. These metrics underscore the continued strength of end-user demand for data centers, particularly from hyperscale and artificial intelligence occupiers, according to a CBRE report.
Pricing for data center assets increased 2.5% for 250 to 500 kW requirements and larger deployments, particularly those above 10 MW, increased by up to 19%, according to the report. Pricing increases are driven by tight supply of contiguous power blocks, elevated buildout costs and fierce competition among tenants for high-density infrastructure, said CBRE.
The most significant factors in pricing and site selection include power availability and infrastructure delivery timeliness, according to CBRE.
Northern Virginia has emerged as a data center hotspot, with an 80% increase in under-construction supply to nearly 2,100 MW and 539 MW of net absorption during the first half. Average pricing in the market has climbed 13.8% since the start of this year. Meanwhile, Silicon Valley had strong data center growth among core markets, with pricing for large data centers increasing by 19%, and Chicago posted a 15.4% gain in the 10 MW and larger tier.
Across primary markets, the data center pipeline reached 5,242.5 MW during the first half, down from a peak of 6,350 MW during the second half of 2024 but 81.5% above the total of 3,245.2 MW during the second half of 2023. Demand is highlighted by strong preleasing activity as nearly three-quarters of all under-construction capacity is already committed.
Economic uncertainty and power supply challenges resulted in delayed decision-making that depressed North American center investment volume during the first half to less than $1 billion, according to CBRE. Nevertheless, data center fundamentals remain strong and the sector’s appeal as an alternative asset continues to attract a broad investor base. Investment activity is expected to rebound during the second half as delayed deals close and new, large-scale investment opportunities emerge.
CMBS issuance for data centers hit an all-time high of $4.5 billion during the first quarter, led by Switch’s $2.4 billion deal backed by three Nevada data centers and QTS’s $2.05 billion transaction secured by data center assets in Virginia and Georgia.
Data center Cap rates remained relatively stable, with robust demand for quality assets outpacing supply. Initial cap rates for Class-A assets typically ranged from 100 to 150 basis points (bps) above the 10-year Treasury yield, said the report. Sites that offer power access within 18 months to three years are highly sought after and have prompted significant investment from owner-users and developers in tertiary markets. Pennsylvania has seen notable activity, benefiting from its ample power supply and strategic location near the New York Tri-State and Northern Virginia markets.
Power demand has prompted utilities to seek capital for power generation and transmission infrastructure serving data center sites. As power consumption and data center sizes grow, the demand for markets with low power costs will boost supply growth. Such markets include Atlanta, Charlotte-Raleigh, Dallas-Fort Worth, Austin and San Antonio, according to the report.
CBRE highlighted South Carolina and Tulsa as two markets to watch within the data center space. South Carolina has attracted data center investments from Google, which is expanding its existing Berkeley County campus and establishing new campuses in Dorchester County, and Meta, which is developing an $800 million data center campus in Aiken County. Tulsa offers low energy costs, affordable land, tax incentives and a business-friendly environment, all of which are attracting data center developers to Oklahoma.
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