Data centers are in high demand in Silicon Valley, leading to the largest construction pipeline in North America for the specialty properties, according to a new report by CBRE.
A data center facility houses technological infrastructure for building, running and delivering online applications and services. In the industry, space is measured by megawatts as an indication of how much power is required to operate the facility, rather than the square-footage metric for most real estate.
According to the CBRE report, Silicon Valley ranks third in North America in terms of net absorption of data centers with 62.4 mega watts, just slightly trailing 64.4 MW in Hillsboro, Oregon. Northern Virginia leads the pack by a wide margin with 436.9 MW of net absorption in 2022.
While Silicon Valley was third in net absorption, it had the largest data center construction pipeline at the end of 2022. More than 141 MW was under construction, 66 percent of which was pre-leased.
There were 66 MW of new deliveries in 2022, up significantly from 21.5 MW in 2021, and the market’s inventory now totals 379.6 MW. Despite the increase in supply, the vacancy rate for data centers was 2.6 percent, the third lowest in North America.
The increase in supply didn’t affect rental rates. They remained the highest in the nation at $155 to $250 per kW per month, up from $135 to $150 per kW per month in 2021.
“Limited land and power supply has led some providers to move from Santa Clara to neighboring parts of Silicon Valley, where there are redevelopment opportunities. Despite the uncertainty of the macroeconomic environment and rising construction costs, providers are eager to find ways to meet demand as it continues to outpace supply,” Jerry Inguagiato from CBRE said.
Silicon Valley followed national trends with net absorption up nearly 40 percent year-to-year. Supply increased by 17 percent, and vacancy fell to a record low of 3.2 percent. A lot of activity happened in the first half of last year, due to power and weather constraints in the back half of the year, according to the report.
One of the data centers in the pipeline is Microsoft’s plan to build a large data center in North San Jose. The 632,000-square-foot project sits between Orchard Parkway and Guadalupe River. Vantage Data Centers recently took out a $350 million loan to redevelop a research center in Santa Clara into a 479,000-square-foot data center.
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