Email Address* Share via Shortlink Tags Share on FacebookShare on TwitterShare on LinkedinShare via Email Share via Shortlink Commercial Real EstateData CentersTRD Insights Secondary market Seattle is facing major growth. (Getty)As new technologies, streaming and remote work drive demand for data centers across the country, smaller markets with relatively limited supply are attracting more attention.Data center space in secondary markets rented at a rate of $134 per kilowatt per month in the second half of 2020, a significant premium from the average primary market rent of $121, according to a recent report from CBRE.While data center leasing activity slowed down somewhat due to pandemic-related budget cuts, things are expected to turn around in a big way this year, with secondary markets such as Austin, Texas and Seattle playing a major role.“Secondary markets are expected to see growth in 2021, based on companies prioritizing their digital infrastructure spend and planning to deliver requirements driven by future demand from 5G, Edge [computing] and IoT [Internet of Things] technologies,” CBRE researchers write in the report.Among established markets, the Northern Virginia data center market remains the largest in the country by a wide margin, and is also the largest in the world. The area’s 1,377 megawatts of inventory account for 48 percent of primary market supply, and a booming pipeline will boost that share even further. (Ashburn, a town in Loudoun County, is known as “Data Center Alley.”)Of the 457 megawatts of primary market data market supply currently under construction, Northern Virginia alone accounts for 61 percent, with 284 megawatts in the pipeline. Of that supply, 160 megawatts have already been pre-leased, and 250 are set to be delivered this year.In terms of floor area, power density at data centers has risen significantly in recent years and is generally in the 250 to 300 watts per square foot range.The second-largest data center market in the country is Dallas, with 361 megawatts, and a rather high vacancy rate of 18 percent. That figure is likely to fall amid “an uptick in enterprise leasing in 2021,” CBRE analysts write, “as Dallas has historically been a market dominated by enterprise and Fortune 1000 users.”The third largest market, Silicon Valley, has a record low vacancy rate of just 2 percent and the highest asking rents among primary markets. Chicago was the only major market to see vacancy rates increase in 2020.The Atlanta area, with relatively affordable land and good prospects for future demand, has recently attracted attention from major cloud computing providers. Microsoft is planning a major data center expansion in the area and also acquired 90 acres for a new campus.Read moreReal estate for data centers is having a momentByteDance inks massive data-center deals in USData centers poised for record year of leasing Among secondary markets, Seattle led the way with the most leasing activity and inventory under construction in 2020, followed closely by Austin. Boston commands some of the highest asking rents in the country, and CBRE notes that “several major cloud providers plan to provide local cloud resources in Greater Boston that could make them the dominant consumers of space in 2021 and beyond.”Other secondary markets like Omaha, Nebraska; Des Moines, Iowa; and Columbus, Ohio may also attract more interest in the near future “due to their closer proximity to other Midwestern metros than traditional primary markets,” the report says.One big driver of investor interest in data centers has been the strong performance of data center REITs, which saw returns of 20 percent in 2020 while the REIT sector as a whole fell by 5 percent.“With more investors targeting data centers and limited opportunities of scale, yields compressed,” the report says. One of the major data center deals of the past year was Blackstone’s joint venture acquisition of eight single-tenant data centers totaling 1.3 million square feet, valued at $293 million.While average data center rents have declined steadily since 2014, CBRE expects prices to stabilize soon — at least for higher-quality, better-connected properties. “Older less-connected assets will continue to see average prices decline.”The rise of edge computing in particular — a paradigm that involves putting computing resources closer to end users’ locations rather than in “the cloud” — is likely to drive demand for data centers in a wider range of secondary markets.“Secondary markets with strong telecommunications, competitive energy, favorable tax structures and strong network connectivity are well positioned to evolve with future technology drivers, paving the way for new edge deployments,” the report says.Contact Kevin Sun Message* Full Name* read more