CBRE Report: Northern Virginia Remains Most Active Data Center Market in North America in H1 2020

Increase in Remote Working and Content Streaming Due to COVID-19 Pandemic Reinforces Importance of Data Center Reliability

Tysons, VA – September 1, 2020 – Northern Virginia saw the most data center leasing activity in North America in H1 2020, according to CBRE’s latest North American Data Center Trends Report.

With net absorption of 93.2 megawatts (MW) in H1 2020, Northern Virginia beat out Toronto and Central Washington for the number one spot. Northern Virginia accounted for nearly 70 percent of the 134.9 MW of net absorption among primary markets in H1. Additionally, the world’s largest data center market got even bigger, with Northern Virginia’s total inventory growing 24 percent year-over-year to approximately 1.3 gigawatts

Despite the significant leasing activity, after adding record new supply in 2019, Northern Virginia’s vacancy rate increased 60 basis points to 7.8 percent, around its historical average. Northern Virginia also accounts for 64 percent (239 MW) of the construction pipeline in the primary market, and strong preleasing activity is expected in the second half of 2020.

“Demand continued to move at a strong pace in Northern Virginia, mostly attributable to tech and cloud companies. Following record new construction in 2019, the market is now at a point where most of the new deliveries from 2019 have been absorbed and landlords are looking to accelerate building their next facilities to accommodate end-user needs,” said Jamie Jelinek, vice president at CBRE.

National Trends

The North American data center sector was resilient in the first half of 2020 as many businesses implemented hybrid IT infrastructure to improve their remote work capabilities and streaming content providers saw increased viewership due to the COVID-19 pandemic.

The seven primary U.S. data center markets saw 134.9 megawatts (MW) of net absorption in H1 2020—down from record levels in the first halves of 2019 and 2018, but still higher than the same period in 2017 and 2016. The vacancy rate in the primary markets dropped 70 basis points year-over-year to 10.3 percent despite a 5 percent growth in inventory during H1. The decline in net absorption in H1 2020 was largely due to increased supply.

“The economic slowdown will force companies to scrutinize every dollar of their IT spending, but continued investment in mission-critical IT infrastructure like data centers and cloud services will be imperative to supporting business continuity and remote working,” said Pat Lynch, Senior Managing Director, Data Center Solutions, CBRE. “The outperformance of data center REITs compared to other public real estate securities so far in 2020 has brought new investor interest to the sector, which will likely result in increased development activity.”

Top North American Data Center Markets

Top 10 Most-Active Markets:

Strong demand over the past several years has resulted in a 373.6-MW data center construction pipeline in the primary markets, a third of which has been pre-leased.

Other markets with significant construction pipelines include Montreal (55 MW), Central Washington (43.7 MW), Atlanta (28.5 MW) and Phoenix (28.1 MW).

*The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.