Demand for new data center space has been on the rise in the Minneapolis-St. Paul market throughout 2021. And the signs point to this demand remaining strong throughout the first half of 2022, too.
That’s the takeaway from the most recent North American Data Center Trends Report from CBRE.
According to CBRE’s report, Minneapolis saw the ninth-highest amount of data center leasing activity in North American in the first half of 2021.
CBRE reported that Minneapolis saw 4.2 megawatts of net absorption of data center space in the first half of 2021. That’s a year-over-year increase of 600 percent, largely because of users moving their on-site data centers to third-party cloud providers.
CBRE also said that Minneapolis added 0.9 megawatts of data center inventory in the past year, bringing its total to 55.6 megawatts. The future looks busy in this sector, too, with CBRE reporting that the Twin Cities market had 13.5 megawatts of data center inventory under construction as of the midpoint of 2021.
Dan Peterson, vice president of data center solutions in the Minneapolis-St. Paul office of CBRE, said that the Twin Cities are not unusual: Demand for data center space is rising across the country.
“It is indicative of what we are seeing in a number of markets,” Peterson said. “There is a set of conditions historically that are making it favorable for data center development. We are in another cycle where technology needs are pushing the demand for new data center space. It is going on everywhere.”
Peterson said that enterprise users are more frequently moving to a hybrid strategy today, relying on a combination of cloud services, colocation services and their on-premises data centers.
As this happens, companies need more data center space. This is keeping developers busy across the country.
“It’s been interesting during the pandemic. At first, everyone was working remotely. That showed just how important cloud services are,” Peterson said. “We saw a real spike in demand for the services that those cloud companies can provide.”
At the same time, a number of larger IT projects were put on hold at the start of the pandemic, Peterson said. That led to a drop in the demand for wholesale data center use from some customers.
But as the country moves into the next phase of the pandemic – with the hope that the omicron variant will be less severe than other forms of COVID – demand is again on the rise for data center space, with cloud service companies continuing to drive the market in both primary and secondary cities.
Peterson says that the demand for data center space, both in the Twin Cities market and across the country, will only continue to rise.
“Operators continue to build more inventory,” Peterson said. “And that inventory continues to be mostly pre-leased. Demand for data center space will only rise in both primary and secondary markets. I see an upward trajectory for data center demand for the foreseeable future.”
As Peterson said, data center demand is rising not just in Minneapolis and St. Paul but across the country, too, something highlighted in CBRE’s most recent data center statistics.
Providers brought 214.3 megawatts of new wholesale colocation supply online in the seven primary U.S. data center markets in the first half of 2021, an increase of 7 percent from the year-earlier period, CBRE reported.
Despite this new supply, vacancy remained low across those markets – as low as 1.6 percent in Silicon Valley – amid persistent demand.
Relief from tight vacancies likely will come from the 527.6 MW of capacity currently under construction in primary markets. That figure marks a 42 percent increase from a year earlier, CBRE reported.
“We’ve seen no indication that the amount of data used is leveling out, so demand for data centers will increase across both primary and secondary markets,” said Pat Lynch, senior managing director of data center solutions for CBRE.
“Hyperscale users are beginning to position themselves closer to end users to support technologies including 5G, artificial intelligence and blockchain technology,” Lynch said in a written statement. “As this interest in edge computing and edge data centers continues, we expect to see a heavier appetite for data centers from investors who are starting to view data centers in the same category as more traditional real estate sectors.”
Northern Virginia remained the most active data center market with net absorption of 70.6 MW in the first half of 2021, more than triple that of Phoenix, the next highest market.
Net absorption totaled 142.7 MW across the seven primary markets in the first half, an increase of 3.4 percent from the first half of 2020.
Data center users leased more space in the first half of 2021 than in the second half of 2020 despite fewer deals being signed during this period. Phoenix saw more leasing activity in the second quarter of 2021 than during any other quarter in the previous five years.
However, several markets, including Northern Virginia and Dallas, saw a drop in absorption year-over-year as some users consolidated their operations, CBRE reported.
Of the construction underway at the end of the second quarter, 317 MW (60 percent) has been pre-leased. Markets with notable pre-leasing activity include Silicon Valley, where 70 MW (82 percent) of the total MW under construction was spoken for, as well as Dallas (17.5 MW), Chicago (17.1 MW), New York Tri-State (13.1 MW), Phoenix (6 MW) and Atlanta (3.5 MW).