CBRE Report: Technology, Enterprise and Life Sciences Companies Drive Activity in Boston’s Data Center Market

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Rich Modliszewski

Boston – Driven by demand from technology, enterprise and life sciences companies, Boston’s data center market experienced significant growth in H1 2020, according to CBRE’s latest North American Data Center Trends Report. A new proposed subsea cable is also driving development activity in the region.

Boston finished out H1 2020 with 77.8 megawatts (MW) of inventory, up 3.5 MW since the end of H1 2019. Vacancy rates dropped 40 basis points to 19% at the end of H1 2020, despite a 3.5 MW drop in absorption year-over-year.

“Boston’s data center market continues to be largely driven by local technology, enterprise and life science companies, which accounted for more than 75% of local demand,” said CBRE’s Rich Modliszewski, who specializes in data center and telecommunications brokerage in the Greater Boston Area. “Currently, the market has 3.8 MW under construction with staggered deliveries over the next several quarters.  Additionally, there is 1 MW+ of pent-up demand projected to close in H2 2020.”

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

Northern Virginia remained the most active data center market, with net absorption of 93.2 MW in H1 2020.

Top 10 Most-Active Markets:

Market H1 2020 Absorption Market H1 2020 Absorption
Northern Virginia 93.2 MW Silicon Valley 7.3 MW
Toronto 35.7 MW Chicago 7.3 MW
Central Washington 13.9 MW Phoenix 6.0 MW
Dallas-Fort Worth 12.2 MW Austin/San Antonio 6.0 MW
Atlanta 7.8 MW Montreal 5.5 MW

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. Northern Virginia accounts for 64 percent (239 MW) of the construction pipeline in the primary markets.

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.