SoCal is seeing an uptick in demand for data centers as more cloud service providers and other firms take space.
Around 7.7 MW of data center space across Southern California was taken up by firms in 2021 — a 38 percent increase compared to 2020, according to a report from CBRE.
To meet demand, developers are also planning more data center facilities. In Southern California, around 15 MW of data center space was under construction in the second half of last year, more than double the amount under construction during the same period in 2020. All of those data centers under development are already pre-leased, according to CBRE.
Data center space is measured through megawatts — how much power can be taken up by a customer. These facilities can range from 100,000 to more than 1 million square feet in size. One facility in Santa Clara, owned by Digital Bridge and Vantage Data Centers, has a 24-MW capacity and spans 175,000 square feet.
Southern California isn’t the only market seeing a surge in data center demand. Inventory of data center space in Northern Virginia — the largest data center market in the world — has grown 301 percent since 2015. Around 239 MW of wholesale data center space was under construction at the end of 2021 in Northern Virginia.
An increase in demand for cloud computing, as well as an uptick in how many firms and people use cloud storage and functions, is driving this growing demand for data center space, CBRE said in its report.
Social media companies are spearheading this demand, making up the bulk of pre-leased space across U.S. markets.
Despite a growth in demand, average asking rents for data cents has actually declined over the last five years.
In 2016, the average monthly asking rate for a 250 to 500 kW space was $136 per kW. At the end of 2021, that monthly rate dropped to $120 per kW.
Despite an overall drop in average rental rates, “data centers with robust network connectivity and purpose-built efficiencies continue to see pricing premiums over older, less-connected assets,” according to the report.
As demand continues to grow and more new supply comes to market, rental rates will eventually rise, CBRE said.
Recent activity from institutional investors signals demand will continue to rise. In August, Blackstone bought data center provider QTS Realty Trust for $10 billion, assuming more than 7 million square feet of data center space throughout North America and Europe.
In Downtown Los Angeles, private equity firm GI Partners recently scored a $389.3 million refinancing package from Goldman Sachs for One Wilshire, a 661,000-square-foot tower that operates as an internet exchange.