Net absorption for wholesale space totaled 12.2 megawatts (MW) in 2016, on par with totals in the past several years. As the wholesale market in Atlanta continues to expand and evolve, the availability of custom facility/redundancy configurations, a favorable business climate, abundant and reliable power and low utility costs will likely make the metro a key market for wholesale data requirements.
2016 net absorption totaled 195 MW across the major data center markets (Atlanta, Chicago, Dallas/Ft. Worth, New York/New Jersey, Northern Virginia, Phoenix and Silicon Valley), nearly matching the 200+ MW of absorption in 2015. Leasing volume across the U.S. was dominated by a flurry of hyper scale cloud-service provider (CSP) requirements that sometimes reached in excess of 15 megawatts (MW) each.
“Atlanta is a critical interconnection point for the Southeastern U.S.,” said Jennie Karnes, vice president, CBRE Data Center Solutions. “While a variety of favorable factors – from power costs, land prices, tax incentives, etc. – have historically fueled an abundance of corporate owned and operated data center builds in suburban areas, the aggregation of fiber density in the downtown core will also continue to drive data center demand as proximity and access to network connectivity become increasingly critical for businesses in the region.”
The Atlanta market is driven by smaller-sized retail requirements from companies within the metro area. Atlanta is largely dominated by single-tenant and corporate-owned data centers, most which are in suburban areas. From a multi-tenant market perspective, Atlanta is a well-balanced market considering supply and demand dynamics. Vacancy rates for existing or commissioned space are 11.4 percent, down from 15.7 percent a year ago.
There are currently 271 MW under construction in major markets, more than 160 MW of which are being delivered on a speculative basis. The largest volume of construction is in Northern Virginia (121 MW), and upwards of 40 MW of new capacity are expected in markets like Dallas/ Ft. Worth and Silicon Valley. Even with the addition of much-needed new supply, market conditions in nearly all major data center markets should remain landlord-favorable in 2017 from a supply-demand balance perspective. In Atlanta, the supply pipeline is considerably constrained, totaling only 3.5 MW, with 2 MW of that total already pre-leased. At this point in time, data center operators in Atlanta are unlikely to build excess speculative capacity until market dynamics shift or tighten. Only 8.6 MW of new capacity was added in 2016, trailing net occupancy gains.
“The C-suite at most enterprises has arguably never been more attuned to the costs, potential risks and pitfalls of building and operating their own data centers,” said Pat Lynch, senior managing director, Data Center Solutions, CBRE. “The result in 2017 will likely be a continued wave of enterprise data center facilities becoming available as companies continue to migrate to hybrid IT solutions (cloud, colocation and others) and their enterprise data centers become a smaller part of their IT footprint.”
The first signs of this trend have already started to appear: After a lackluster 2015, total sales volume for data center assets increased dramatically to nearly $1.78 billion in 2016 at an average price per square foot of $275. This total does not include several announced large portfolio transactions that are slated to close in 2017.
“The sustained magnitude of market leasing in 2017 will likely depend on how accurate cloud providers were in forecasting customer demand and subsequently provisioned data center capacity to meet it,” said Mr. Lynch. “Additionally, legacy corporate data center assets are poised to come to market in 2017 in a big way. While not likely a supply-side risk to the multi-tenant market, well-connected real estate near critical population centers has the potential to command strong demand and pricing.”