Colocation facilities are a tried and trusted method for enterprise clients to move their server needs off site to a secure location. But cloud service providers have taken a larger market share the last few years—leading to more data center developments.
According to new research from CBRE, the primary U.S. wholesale data center markets—which CBRE identified as Atlanta, Chicago, Dallas/Ft. Worth, the New York Tri- State area, Northern Virginia, Phoenix and Silicon Valley—saw a combined 225.9 MW of net absorption in the second half of last year. That’s a 32 percent uptick from the 170.5 MW recorded in H1 2019.
Around the country, cloud-service providers are creating demand for new deliveries. In some markets, these hyperscale users can even account for 80 to 90 percent of demand. The situation isn’t that starkly defined in Chicago—recently named fourth on a global catalogue of data center markets—but there has been a noticeable change over the past three years.
Wholesale colocation/enterprise absorption accounted for roughly 60 percent of Chicago’s market share in 2017, compared to the 40 percent market share of hyperscale cloud absorption. Those two use types evened out in 2018. Last year they swapped positions, with hyperscale cloud absorption cornering approximately 60 percent of the market.
The CBRE report noted a moderate increase in enterprise activity in 2019 with deals ramping up to 2 MW. Legislation passed last summer offers tax exemptions on qualified tangible personal property used for both existing and new data centers. A $250 million capital investment—and the creation of 20 full-time jobs—is required to tap into the program. These new tax incentives may impel more hyperscale activity in the market.
However, large blocks of capacity remain vacant in the Chicago metro, flattening prices. The vacancy rate for data storage space is 13.8 percent in Chicago; average asking rents range from a minimum $80 to $110, depending on capacity. QTS Realty Trust, a publicly traded REIT, had the most activity in the second half of 2019. Their facility at 2800 S. Ashland Avenue, which opened on a 30-acre campus in 2016, saw 4 MW of absorption last year.
As for new development, RagingWire is building two 36-MW data centers in Itasca, Illinois with the first phase set to come online this year. Denver-based STACK INFRASTRUCTURE also announced plans to expand its existing facility at 1441 Touhy Avenue in Elk Grove Village, Illinois. That project will offer at least 20MW of additional critical capacity bringing the provider’s total Chicago-area capacity to at least 33MW.
Data center developer and operator, ServerFarm, recently formed a partnership with NYI, a provider of managed hybrid IT solutions, to support the rapid growth of latency-sensitive applications in the Chicago area related to edge, IoT, AI and 5G. This points to a possible future trend where colocation and cloud services are less segregated.
While “cloud first” initiatives are targeting more end users, demand for colocation and on-premise space remains strong. CBRE points to an abundance of hybrid IT strategies where physical server space is required for provisioning specific IT loads—a trend that allows end users to take advantage of the flexibility and connectivity of cloud providers while maintaining control over applications and testing environments.