Data Centre development trends

Key Takeaways

This article covers some of the data centre trends occurring globally and in Australia specifically. 28th August 2023.

Takeaways

• A worldwide shortage of available power is inhibiting growth of the global data centre market. Sourcing enough power is a top priority of data centre operators across North America, Europe, Latin America and Asia-Pacific. Certain secondary markets with robust power supplies stand to attract more data centre operators.
• New development is occurring across all four regions despite limited power availability. Northern Virginia remains the world’s largest data centre 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 centre 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 centre 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 centre 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 centre demand. This will spur innovations in data centre design and technology as operators aim to deliver the capacity that meets the increased power density requirements of high-performance computing.

Inventory

Source: CBRE

North America

Inventory continues to climb, with Northern Virginia leading the way. 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.

LATAM

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

Data centre 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.

Demand and Vacancy

Global Vacancy for Data Centres. Source: CBRE

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.

LATAM

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

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.