Denver Sees Second-Most Data Center Leasing Among Secondary Markets in First Half of 2020
An increase in remote working and content streaming due to the COVID-19 pandemic has reinforced the importance of data center reliability. According to CBRE’s latest North American Data Center Trends Report, Denver saw the second-most data center leasing activity among secondary markets in the first half of 2020. Denver recorded 2.9 megawatts (MW) of net absorption, trailing only Austin/San Antonio (6.0 MW) among secondary markets. Northern Virginia, a primary data center market, remained the most active overall, with net absorption of 93.2 MW in H1 2020.
“Metro Denver is benefiting from the influx of technology companies to the region. New incentives announced by Xcel Energy and certain municipalities to attract data centers will more competitively position the Denver area to land hyperscale users. We are seeing an increased pipeline of 200 kW-to-1 MW colocation requirements beginning to hit the market. Additionally, aerospace and defense contractors are expanding their presence in Colorado, which will likely result in increased data center demand down the road,” said Greg Vernon, senior vice president, Data Center Solutions, CBRE.
Denver increased its data center inventory by 1 MW in H1 2020, and it now totals 86.2 MW. While no new inventory is currently under construction in Denver, several new development sites are attracting large data center deals in Aurora and Colorado Springs, including a large data center campus for a leading colocation provider.
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.”
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. The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.