The pandemic has contributed to increased data center utilization as businesses suddenly faced an increased need for cloud technology to connect and support remote workers. This increase in cloud migration has accelerated the growth and expansion of data centers globally, forcing major data center operators to expand their footprints, according to a recent Cushman & Wakefield commercial real estate services firm report (C&W).

“Reliance on technology platforms over the past 24 months has reached an all-time high, creating demand for more data center space across the globe,” says Phoenix-based Carl Beardsley, senior director at JLL Capital Markets, which notes that large operators and users are responding by creating data space and releasing it at high speed.

Over the past year, US users have absorbed 500 megawatts (MW) of data space, says Bo Bond, executive general manager and head of the Dallas-based C&W global data center team. Most of this absorption has been carried out by “hyperscalers”, the largest occupants of data centers, which are mainly cloud services companies, including Google Cloud, Amazon Web Services (AWS) and Microsoft.

JLL tracks both colocation uptake and full-scale development activity, according to Beardsley. In terms of uptake activity in the colocation space, the top five or six U.S. markets typically see 70-80% of all activity, he notes. These markets include Northern Virginia, Phoenix, Chicago, Santa Clara, California, Dallas and the Pacific Northwest.

These major markets are all seeing a significant amount of new development, but in recent years Phoenix and Hillsboro, Oregon have seen an increase in colocation development as they offer competitive tax advantages, low cost electricity, relatively low land costs weak and a quick right. process, says Beardsley. These factors also attract public cloud users.

Data center developers are looking for additional capital to meet the additional demand, and they are not disappointed, as data centers are currently among the hottest alternative real estate investment sectors in the United States, and many investors are entering this market for the first time. time.

“Historically, data center capital markets have been a mix of data center operators, infrastructure funds, data center REITs and investors who partner with preferred operators,” Beardsley notes. . “Now there is a large influx of institutional capital looking for higher yielding opportunities that have performed well during the pandemic and are shifting the focus from ‘core’ asset classes to this sector,” says- he.

“There’s a ton of money coming into this sector,” Bond adds, noting that other new entrants, including private equity funds, investment funds created to specifically invest in data centers and sovereign wealth funds, have all entered this market. There are also infrastructure funds that have grown from roads and bridges to data facilities and towers.

In fact, there is so much money invested in large public data center REITs that they are consolidating and going private. Three of the largest portfolio acquisitions of data center REITs took place last year when CyrusOne, CoreSite Realty and QTS Realty were taken private. For example, Blackstone acquired QTS for $10 billion.

An increase in user demand over the past six to 12 months for large blocks of space is driving new developments, with some users even taking up entire buildings of 250,000 square feet or more, Beardsley says. In fact, the demand for single-tenant data centers exceeds the demand for multi-tenant space in some large markets like Northern Virginia, where 53% of users are looking for single-tenant centers.

“It can be difficult for users to predict future computing loads, so these end users need to make sure they get enough space to keep growing with business demands,” Beardsley says.

Demand for data center space is so strong that Beardsley notes that cloud service providers doing greenfield development are attracting institutional capital.

While hyperscalers rent a lot of data space from colocation operators, Bond says a huge acceleration in cloud-based services is also leading to an increase in the development of cloud companies. Beardsley notes that the top five hyperscalers are growing in primary markets, as well as areas not dominated by data center operators, such as Iowa, New Mexico, Nevada and Ohio. “These large-scale users typically purchase large plots of land – over 300 acres – and build a campus with multiple buildings,” he adds, noting that they often need additional resources that can be difficult to obtain. at urban filling sites.

“As the use of cloud-based computing increases, hyperscalers will continue to expand into secondary and tertiary data center markets,” Beardsley says.

For example, Google Cloud plans to build new data centers in Nebraska, South Carolina, Virginia, Nevada and Texas, according to an announcement made by Alphabet and Google CEO Sundar Pichai last May. Apple will also begin construction this year on a $1.3 billion data center in Waukee, Iowa, which has been on its drawing board since 2017. reported KCCI Des Moines. And Meta (Facebook) is building a new $800 million data center near Kuna, Idaho to support its future metaverse, reported Data center border.

AWS is building data centers in new markets around the world, but its biggest game is right here at home. The tech giant plans to spend $35 billion to build four more than 1 million square foot data centers on an 80-acre site adjacent to the Manassas Mall in Prince William County in Northern Virginia, according to DCD News. The company’s data center revenue grew nearly 40% year-over-year in the third quarter of 2021 to $16.1 billion,

And Microsoft unveiled an aggressive plan to build 50 to 100 new data centers in the US and around the world each year for the foreseeable future. reported CRNas it expands its Microsoft Azure cloud offerings around the world.