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Executive Summary
- A worldwide shortage of available power is inhibiting growth of the global data center market. Sourcing enough power is a top priority of data center operators across North America, Europe, Latin America and Asia-Pacific. Certain secondary markets with robust power supplies stand to attract more data center operators.
- New development is occurring across all four regions despite limited power availability. Northern Virginia remains the world's largest data center market with 2,132 megawatts (MW) of total inventory.
- Despite new development, vacancy rates are declining in all four regions due to strong demand. Singapore—the world’s most power-constrained data center market—has less than 4 MW of available capacity and a record-low vacancy rate of less than 2%.
- Large corporations are finding it increasingly difficult to find enough data center capacity. Low supply, construction delays and power challenges are impacting all markets. For example, Querétaro, Mexico, has only 1.2 MW available for lease.
- The worldwide shortage of available supply is leading to price increases for data center capacity. Singapore has the highest rental rates at $300 to $450 per month for a 250- to 500-kilowatt (kW) requirement, while Chicago has the lowest at $115 to $125.
- The rapid growth of artificial intelligence—along with other modern technologies, such as streaming, gaming and self-driving cars—is expected to drive continued strong data center demand. This will spur innovations in data center design and technology as operators aim to deliver the capacity that meets the increased power density requirements of high-performance computing.
Inventory
North America
Inventory continues to climb, with Northern Virginia leading CBRE’s global rankings. It has 2,132 MW (2.1 GW) of supply, increasing 19.5% year-over-year from Q1 2022 to Q1 2023. Construction costs have generally increased but the Northern Virginia, Silicon Valley, Dallas/Ft. Worth and Chicago markets saw record MW under construction. Higher energy costs have also not materially slowed development, but power availability and bottlenecks are challenges. Local governments are working to address permitting and planning backlogs on transmission projects, particularly as utility companies aim to connect renewable energy to the grid.
Europe
Data center supply grew year-over-year in Frankfurt, London, Amsterdam and Paris (FLAP) as providers work to meet the strong demand across most top European markets. Continued significant data center development and select megaproject deliveries are expected this year, despite power availability issues. However, most new supply will be delivered in London and Frankfurt.
Latin America
There is 672 MW of inventory in Latin America as of Q1 2023, primarily across Brazil, Mexico, Chile and Colombia. The region has experienced significant growth over the past three years, with supply doubling since Q1 2020. Brazil has grown the fastest, with inventory up 127% from 2020 to 2022. It is also the largest, with around 67% of the region’s inventory.
Asia-Pacific
Data center inventory is growing rapidly across Asia-Pacific, achieving impressive scale. Tokyo, Sydney and Singapore each now contain over a half-GW of live power capacity. Sydney’s inventory jumped 30% year-over-year. Lack of power availability is a key emerging challenge facing operators in some Asia-Pacific markets. Overall, operators and investors are optimistic about the region’s potential and are expanding development to markets outside Tier 1 cities.
Vacancy
North America
Vacancy is at a decade low across all major North American markets. Northern Virginia’s available MW decreased from 46.6 MW to 38.4 MW over the past year, despite inventory growing 19.5%. Chicago leads our North America rankings of most significant decrease in vacancy, from 8.2% to 6.7% year-over-year. Despite future power availability uncertainty and elevated power costs, Silicon Valley remains near a record low vacancy at 2.9%.
Europe
Across FLAP markets, the average vacancy rate dropped 4.3% from 17% in Q1 2022 to 12.7% in Q1 2023. Vacancy dropped from 21.6% to 15.3% in London. In Frankfurt, the rate dropped from 8.6% to 4.8%. There will be little relief for occupiers seeking capacity in Europe’s top markets this year. More supply is coming throughout the year, though the vacancy rate is expected to remain low as demand will likely remain strong.
Latin America
The average vacancy rate for Latin America has declined from 12.2% in Q1 2022 to 8.6% in Q1 2023. This trend is most notable in Santiago, where vacancy has moved from 11.7% in Q1 2022 down to 3% in Q1 2023. Querétaro is also showing very tight vacancy at 3.1%. Most of the region’s new inventory has been pre-leased to hyperscalers, with persistent high demand.
Asia-Pacific
Vacancy has declined in most key markets over the past 12 months, except in Sydney, where significant new supply has come online. Singapore has under 4 MW of available leasing space and a record-low vacancy rate of under 2%. Tokyo and Hong Kong have also reduced vacancies by 1.5%, to 2% year-over-year.
Net Absorption
North America
Leasing activity has shown remarkable resilience despite higher interest rates and economic uncertainty. Strong demand from technology, financial services, healthcare and telecommunications industries contributed to positive absorption. Artificial intelligence is a key focus for Fortune 500 companies, projected to significantly drive future demand. Northern Virginia had 355.6 MW of positive absorption from Q1 2022 to Q1 2023, while Dallas/Ft. Worth, Chicago and Silicon Valley trail significantly at 62.8 MW, 62.5 MW and 45.7 MW, respectively.
Europe
Demand is expected to remain strong despite macroeconomic headwinds. The FLAP markets had a combined 316 MW of positive absorption from Q1 2022 to Q1 2023. Most (256 MW) of that total absorption was in Frankfurt and London. Hyperscalers are trying to stay ahead of demand for their services, procuring large tranches of capacity from data center operators. They are doing this by expanding their availability zones, where public cloud service providers operate within distinct geographic areas that offer high-speed fiber network connectivity.
Latin America
In Q1 2023, net absorption declined slightly year-over-year to 62.2 MW, though demand across Latin America remained robust. Net absorption in Latin America has more than doubled since 2020, when the market absorbed 61 MW, almost 20% of the total Inventory. Lack of digital infrastructure development during the previous 10 years has prompted public and private entities to invest in connectivity, data storage and internet access. This digital transformation has led to strong net absorption and higher subsequent adoption of cloud services.
Asia-Pacific
Despite macroeconomic headwinds and rationalization in the global technology sector, Asia-Pacific leasing activity remains resilient. There is continued demand across industry verticals as businesses and governments move towards digitalization. Sydney led in net absorption with over 99 MW leased. Tokyo has 43 MW of net absorption. Activity levels in Singapore and Hong Kong were more muted at just over 21 MW each. Emerging markets such as Mumbai and Seoul also recorded take-up growth.
Pricing & Rental Rates
North America
Pricing in North America continued trending up in Q1 2023 because the region is significantly supply constrained. There is not enough available space to satisfy specific needs from different customers. Lack of power availability, expensive land, high materials and labor costs and supply chain delays have slowed new construction completion. Rental rates stabilized in 2021 and have consistently trended up, as of Q1 2023. In the past year, Silicon Valley pricing experienced the most significant year-over-year increase, with the highest rates in North America.
Europe
Pricing has steadily increased in the top European markets, given strong demand and higher build and operational costs. Those factors caused rental rates to climb over the past 18 months. Rates are highest in Frankfurt and London. Operators have had to pass the higher operational and build costs on to their customers by increasing rental rates. Lack of available inventory in Europe’s largest markets is another key factor contributing to higher rates.
Latin America
Colocation rental rates in Latin America are rising due to greater data center services demand. Pricing is notably higher in Latin America compared with more mature Western markets in North America and Europe. Limited supply, high fees and taxes are important factors causing rental rate increases.
Asia-Pacific
Colocation rental rates in Asia-Pacific remain strong, despite major new inventory development and macroeconomic uncertainty. Singapore is one of the most expensive markets globally, at over USD $300 per kW, while Tokyo prices are holding steady around USD $200 per kW. Sydney colocation rates are amongst the most competitive in Asia-Pacific, though still within an attractive band for new operators and investors to enter that market.
Availability
North America
Data centers have shown tremendous resilience compared with other asset classes. Enormous growth in supply from Q1 2022 to Q1 2023 was met with strong demand, resulting in leasing availability reduction of -8.2 MW in Northern Virginia. Dallas/Ft. Worth and Chicago were not far beyond, with only +0.2 MW and +0.5 MW of increased availability. In Silicon Valley, leasing availability rose only slightly, at +6.8 MW.
Europe
Leasing availability decreased 17% across FLAP from Q1 2022 to Q1 2023. Power capacity remains scarce in top European markets and is harder to source. The data center industry’s largest customers are securing power capacity at such an increasing volume that it’s outpacing completed development. Hyperscalers are attempting to ensure they can meet the anticipated future demand for their digital services. They must increase their digital footprints for adequate future performance and reliability.
Latin America
São Paulo leads the region with 52.3 MW of leasing availability in Q1 2023, down from 69 MW in Q1 2022. 70 MW is available in core markets (São Paulo, Santiago, Querétaro and Bogotá), which is distributed among legacy and new-build enterprise assets that offer colocation services. It can be challenging to meet the demands of organizations that require over 1 MW due to some countries’ limited available leasing space.
Asia-Pacific
Data center availability in Asia-Pacific remains healthy, with growing demand across most markets absorbing new supply. Inventory in Singapore remains constrained, with few developments in progress after a government-imposed moratorium. Sydney is experiencing a wave of new supply. CBRE expects robust demand across the region for the foreseeable future, despite current challenges. This will attract operators to build new capacity, ensuring colocation availability for both cloud service providers and enterprises.
North America Featured Markets
Northern Virginia
Over 90% of Virginia data centers are in Loudoun County, Prince William County and Fairfax County. Strong demand and supply constraints in Q1 caused vacancy in Northern Virginia to remain near a record low of 1.8%. Electricity rates in Northern Virginia remain steady, despite power availability headwinds. Information provided by Dominion Energy reveals that power availability issues are reflective of transmission and distribution issues, not power generation. There is significant new development despite power challenges, and hyperscaler demand has enticed new operators.
This region significantly benefits from nuclear power. Approximately 34% of the power supply for electricity is sourced via nuclear plants. If significant resources are invested into nuclear energy, this may contribute to easing future power availability issues in five to 10 years.
Opportunities
There is more power capacity availability outside Northern Virginia, such as in Central Virginia. Developers and operators have the opportunity to increase development along I-95 to Fredericksburg and Richmond. Maryland and other adjacent Virginia counties could see an uptick in development too.
Challenges
Power supply concerns raise questions about future development, but the bottleneck should ease by 2025 or 2026.
Silicon Valley
Aided by technology industry proximity, Silicon Valley has been an ideal location for innovative companies seeking colocation data center space. Silicon Valley Power, the main utility provider for Santa Clara, historically offered meaningfully discounted power rates to utility provider PG&E in neighboring cities. This boosted data center development as providers aimed to save energy costs.
Recently, power availability constraints and inflated land prices have caused providers to explore new development in further neighboring areas, like the East Bay. Asking rental rates in the 250 to 500 kW range have risen to $155 to $250 per kW, the highest of all North American markets in our report. However, vacancy remained near historical lows at 2.9% during Q1. In terms of water supply, a record-setting snowpack has temporarily eased drought conditions throughout Northern California. This is a relief for facilities with liquid cooling, as opposed to air cooling.
Opportunities
Expansion into new local markets could provide a solution for Santa Clara’s and Silicon Valley Power’s capacity issues. Continued progress and innovation among local technology companies could lead to additional capacity demand.
Challenges
Land prices have increased substantially in the last five years. There is a lack of available land and rental rates are higher than other major North American markets. Many new substations will not energized until 2028 to 2029.
Dallas/Ft Worth
Dallas/Ft. Worth remains one of North America’s most popular markets for data center development. Currently, a record setting 323.9 MW are under construction, with 88.4% of capacity preleased. Last year saw an 850% increase over the normal leasing activity in Dallas. Also, total inventory rose 17% year-over-year, from Q1 2022 to Q1 2023. This resulted in Dallas/Ft. Worth recently surpassing Silicon Valley as the nation’s second-largest colocation data center market.
Texas has optimized its power transmission and distribution process while many states have had delays. ERCOT, the energy grid servicing most of Texas, operates entirely within the state. This presents a streamlined process for independent decision-making and execution. ERCOT also has vulnerabilities, highlighted during the winter freeze of 2021, which caused wind turbines to fail, resulting in severe shortages and delays.
Opportunities
ERCOT’s and Oncor Electric’s available power enabled a shorter timeline than many other major markets for development. Mean-while, those other markets face supply chain and power supply de-lays. Developer demand has been strongest in South Dallas.
Challenges
There is speculation about if demand can continue to meet supply expectations, as construction and inventory surpass all-time highs.
Chicago
Hyperscalers and enterprise operators remain interested in Chicago. Technology, finance and healthcare industries continue to drive strong demand in enterprise data center activity. While inventory grew 20.6% year-over-year from Q1 2022 to Q1 2023, available lease space declined 2% year-over-year. This reflects an updated vacancy rate of 6.7%. Many developers are competing for power capacity on the same existing and newly constructed substations. Large power deliveries will require 3 to 5 years to complete. Land availability continues to be extremely limited in the O’Hare market and land prices remain stable despite broader macroeconomic conditions. Demand from both data center developers and institutional industrial developers remains strong.
Opportunities
Chicago benefits from its size, location and demand from cloud service providers (CSP). It’s strategically situated in the Midwest and is the U.S.’s third-most populous city. CSPs prefer close proximity to end-users, so Chicago is expected to see additional demand.
Challenges
Available and affordable land for development is a main challenge. Additionally, power rates at $0.065 to $0.07 are higher than alternative markets.
Austin, Texas
Located in the “Texas Triangle” along with Dallas/Ft. Worth and Houston, Austin has emerged as one of North America’s fastest-growing data center markets. Hutto, Pflugerville, Round Rock and Taylor in North Austin have seen impressive new activity in the past five years. The Samsung semiconductor fabrication campus in Taylor received the largest foreign investment of any real estate project in Texas history, reflecting the interest level in data centers. Additionally, Round Rock is home to Dell’s corporate headquarters.
Charlotte, North Carolina
Impressive power capacity, availability and affordable land are top reasons hyperscaler demand will continue growing in this region. Advantageously situated between Northern Virginia and Atlanta, Charlotte benefits from great connectivity along the East Coast. The development of subsea cables in Myrtle Beach, connecting to Europe and Latin America, are expected to be completed in 2023 to 2024.
Europe Featured Markets
Frankfurt, Germany
Demand in Frankfurt is mostly driven by hyperscalers, CSPs and, secondarily, by international enterprises and content providers.
Recent regulatory issues have significantly impacted this market’s data center industry. Pending legislation would mandate how local data centers are run, including required operating temperature ranges. Higher required operating temperature ranges in data centers may cause equipment to fail or malfunction. German regulators also want data centers to harness excess heat for warming residential homes. These potential requirements have major cost implications and would significantly impact how local facilities are designed and operated. This legislation, introduced last year, was preceded by the City of Frankfurt’s plan to limit developments to certain neighborhoods where data centers are already located. Despite this, significant demand for capacity in the financial capital of Germany persists.
Opportunities
Operators in search of power, available land and potentially lower taxes are considering municipalities outside of Frankfurt like Hanau, Rüsselsheim and Groß-Gerau, despite higher power prices. A lack of suitable land in more heavily developed submarkets of Frankfurt and advancements in connectivity have made areas further afield an option.
Challenges
A still-pending new energy efficiency law could complicate data center providers’ operations by increasing compliance costs, adding significant expense to doing business in the city. Also, operators that did not secure fixed prices last year before energy prices jumped have incurred significantly higher power costs and could suffer a worsened competitive position.
London, United Kingdom
A variety of large developments are projected to be delivered this year. Europe’s largest colocation data center market has grown consistently, especially in West London. Demand for capacity remains relatively high compared to other European markets, given hyperscalers’ presence in the region. This demand is also due to proximity to world-class London-based organizations and London’s prime location for reaching the Americas via subsea cables. Providers are delivering supply at record or near-record rates most years, yet vacancy is declining.
Providers will need to secure additional power to sustain growth, a growing issue in the region. However, power at key electricity substations for data center operators is in scarce supply. Organizations could seek data center capacity further from London in the future.
Opportunities
CBRE expects operators to make data centers further from availability zones in West London feasible for hyperscalers. There may be additional development in submarkets adjacent to Slough, the location of many hyperscalers’ availability zones.
Challenges
Power is increasingly difficult to secure in London from the transmission system operator. Moreover, a key electricity substation upgrade in the western corridor has been delayed. As a result, securing power from the grid operator is almost impossible for the next few years. This is a problem for the hyperscalers, given their desire to expand their availability zones in the western corridor.