Snapshots

Constraints in primary data center markets driving increased activity in secondary markets

April 28, 2023

Contributors:

Data center demand has increased exponentially over the last five years, as smartphone-based applications, increased hybrid working and more data-intensive technologies such as AI and the Internet of Things all require storage for a larger data footprint.

Overall, North American data center inventory has increased 16.5% annually since 2019. Secondary markets have increased in the share of overall construction in the U.S., growing from 15.4% in H1 2019 to 26.2% in H2 2022.

Northern Virginia is by far the world’s largest data center market with over 3.4 GW of capacity. Primary markets have existing infrastructure that contributes to increased growth, but secondary markets have been expanding as land and power becomes more constrained in certain primary hubs.

Austin/San Antonio is one such market that has seen increased demand due to power constrains elsewhere. The Northwest has also seen substantial growth, with most of the demand going to the Hillsboro submarket, located just outside of Portland, OR.

Emerging markets, areas with even smaller total capacity than secondary markets, are also seeing demand as bandwidth and latency requirements are driving growth closer to the end user.

High-quality trophy product and best-of-best locations are seeing the earliest recovery in the office market

Top markets have removed 5% of office stock since 2020, though redevelopment intensity varies geographically

Net effective office rents have increased since the pandemic in most major CBDs