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TRANSCRIPT
O U T L O O KN O R T H A M E R I C A N
D A T A C E N T E R M A R K E T
C B R E D A T A C E N T E R S O L U T I O N S
D A T A C E N T E R S
2 NORTH AMERICAN DATA CENTER OUTLOOK 2019CBRE DATA CENTER SOLUTIONS| © 2018 CBRE, Inc.
DATA CENTER OUTLOOK
3 NORTH AMERICAN DATA CENTER OUTLOOK 2019CBRE DATA CENTER SOLUTIONS| © 2018 CBRE, Inc.
SUMMARY
The U.S. wholesale data center market retained strong market
fundamentals throughout 2018 and is poised for growth into
2019. Factors impacting the sector include hyperscale cloud
providers and enterprise companies seeking to capitalize on
the growth of global data consumption and the rapid
evolution in technology including the Internet of Things (IoT),
edge computing and 5G. We also expect continued adoption
by our end-user clients of a Hybrid IT strategy combining
their technology needs into strategic relationships with
colocation providers and multiple cloud services. Agility and
flexibility for colocation, IT services and investment will be
key themes for the data center industry in 2019.
SUPPLY AND DEMAND
Through Q3 2018, the U.S. wholesale data center market
absorbed over 215 megawatts (MW). The growth is attributed
to the strong demand largely from hyperscale cloud providers
as demand continues to outpace available supply. Large
absorption occurred in the seven primary U.S. data center
markets: Atlanta, Chicago, Dallas/Ft. Worth, New York
Tri-State, Northern Virginia, Phoenix and Silicon Valley. 2018
year-to-date recorded absorption for the U.S. primary markets
is 80% of the 2017 record level and remains a bullish indicator
moving into 2019.
The growth in North American data center markets over the
last three years is a result of the changing diversity of end-
user’s requirements. Not only have we seen growth in primary
markets, secondary and tertiary markets have started to
capture demand as companies are growing through
integration of technologies such as edge computing and 5G.
Moving into 2019, the expansion into new territories is
expected to continue and places an emphasis on speed-to-
market deployments for available capacity.
0%
20%
40%
60%
80%
100%
120%
Dallas/Ft. Worth Silicon Valley Northern Virginia Chicago Phoenix New York Tri-State Region
Atlanta
% Gr
owth
Source: CBRE Data Center Solutions, Q3, 2018.
FIGURE 2: INVENTORY GROWTH OF PRIMARY DATA CENTER MARKETS SINCE 2015
0
50
100
150
200
250
300
2016 2017 Q3 2018 YTDMe
gaWa
tts
Net Absorption (MW) Pre-leased (MW)
Source: CBRE Data Center Solutions, Q3, 2018.
FIGURE 1: PRIMARY MARKETS - NET ABSORPTION % PRE-LEASING
Agility and flexibility for
colocation, IT services and
investment will be key
themes for the data center
industry in 2019.
DATA CENTER OUTLOOK
4 NORTH AMERICAN DATA CENTER OUTLOOK 2019CBRE DATA CENTER SOLUTIONS| © 2018 CBRE, Inc.
ENTERPRISE CAPITAL MARKETS ACTIVITY
Investment in the data center space was abundant in 2018. A
recent influx of capital from both global investors and new
capital sources, including private equity and infrastructure
funds, created a competitive investment landscape. Data
centers remain a viable option to diversify investment
portfolios as capitalization rates for core wholesale data
centers approach industrial capitalization rates. Investment
in the form of partial sale-leaseback and traditional
transactions are expected to continue as enterprises seek
agility in the structure of their data center assets.
IMPORTANCE OF NETWORK ACTIVITY
The roll-out of 5G emphasizes the demand on network
improvements and highlights the expansive upside of the
data center market. The increase in IoT technologies and
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5
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7
8
9
10
11
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cap R
ate (%
)
Average Data Center Cap Rate Min Data Center Cap Rate
Max of Data Center Cap Rate Average Industrial Cap RateSource: CBRE Data Center Solutions Q3 2018, Real Capital Analytics, Q3 2018.
FIGURE 3: DATA CENTER VS. INDUSTRIAL CAPITALIZATION RATE COMPARISON
connected devices will drive big data and compute capacity in
the coming years. Edge locations will be key to improve
end-user experience and network reliability. We anticipate
smaller, scalable deployment requirements in secondary and
tertiary markets as a result.
BLOCKCHAIN AND CRYPTOCURRENCY
Blockchain technology and cryptocurrency activity emerged
as a meaningful percentage of data center demand for CBRE
Data Center Solutions in 2018. This developing technology
raises many questions for investors and data center providers
alike. As the blockchain space stabilizes, we anticipate an
emergence of unique colocation spaces with low cost power,
reduced redundancies and other relevant factors for
blockchain processing and cryptomining. CBRE transacted
over 20 MW of blockchain space in 2018 and has over 150 MW
of transactions in the pipeline for future deployments.
DATA CENTER OUTLOOK
5 NORTH AMERICAN DATA CENTER OUTLOOK 2019CBRE DATA CENTER SOLUTIONS| © 2018 CBRE, Inc.
WHAT TO WATCH
• Hyperscale cloud providers. Will hyperscale cloud provider
demand continue to outpace supply in 2019?
• New technologies. What will be the impacts of 5G,
blockchain and edge computing on demand in primary
and secondary markets?
• Enterprise data centers. Will enterprise clients continue to
sell or reduce their footprint in data center assets they own
as they migrate to Hybrid IT solutions?
• Economic slowdown. How would a potential economic
slowdown and rising interest rates affect the data center
sector?
CONTACTS
Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
Pat Lynch
Senior Managing Director
CBRE Data Center Solutions
+1 303 628 1765
Kate Peterson
Client Services Coordinator
CBRE Data Center Solutions
+1 303 628 1731
Jeff West
Head of Data Center
Research and Analysis
+1 503 221 4806
Molly Sackles
Client Services Coordinator
CBRE Data Center Solutions
+1 303 583 2048
Michael Kane
Senior Research Analyst
CBRE Data Center Solutions
+1 303 264 1913
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