Don’t expect the demand for data center space to decrease anytime soon in the Twin Cities

Demand for new data center space is increasing in the Minneapolis-St. Paul marketed through 2021. And signs are that this demand remains strong through the first half of 2022 as well.

That’s the takeaway from CBRE’s most recent North American Data Center Trends Report.

According to the CBRE report, Minneapolis recorded the ninth-highest number of data center rental activity in North America in the first half of 2021.

CBRE reported that Minneapolis saw 4.2 megawatts of net absorption of data center space in the first half of 2021. This is a 600% increase year over year, in large part because of users moving their on-premises data centers to third-party cloud providers. .

CBRE also said Minneapolis added 0.9 megawatts of data center inventory over the past year, bringing its total to 55.6 megawatts. The future looks bright in this sector as well, with CBRE reporting that the Twin Cities market had 13.5 megawatts of data center inventory under construction as of mid-2021.

Dan Peterson, vice president of data center solutions at Minneapolis-St. Paul office of CBRE, said the Twin Cities are not unusual: the demand for space for data centers is increasing across the country.

“It’s indicative of what we’re seeing in a number of markets,” Peterson said. “Historically, there is a set of conditions that make it favorable for the development of data centers. We are in another cycle where technological needs are driving demand for new data center spaces. It’s happening everywhere. “

Peterson said enterprise users are migrating to a hybrid strategy more frequently today, leveraging a combination of cloud services, colocation services, and their on-premises data centers.

In this case, businesses need more data center space. It keeps developers busy across the country.

“It has been interesting during the pandemic. In the beginning, everyone worked remotely. It showed how important cloud services are, ”said Peterson. “We have seen a real increase in demand for the services that these cloud computing companies can provide. “

At the same time, a number of larger IT projects were put on hold at the start of the pandemic, Peterson said. This has resulted in lower demand for wholesale data center usage from some customers.

But as the country moves into the next phase of the pandemic – with hopes that the omicron variant will be less severe than other forms of COVID – demand is on the rise again for data center space, companies of cloud services continuing to lead the market in primary and secondary cities.

Peterson says demand for data center space, both in the Twin Cities market and across the country, will only increase.

“Operators continue to create more inventory,” Peterson said. “And this inventory continues to be predominantly pre-let. The demand for space for data centers will only increase in primary and secondary markets. I see an upward trajectory for data center demand for the foreseeable future. “

As Peterson said, demand for data centers is growing not only in Minneapolis and St. Paul, but also across the country, which is evident in CBRE’s most recent data center statistics. .

Suppliers brought 214.3 megawatts of new wholesale colocation offering online across the top seven U.S. data center markets in the first half of 2021, an increase of 7% from the previous year period , reported CBRE.

Despite this new supply, the vacancy rate remained low in these markets – up to 1.6% in Silicon Valley – against a backdrop of persistent demand.

Relief from tight vacancies will likely come from the 527.6 MW of capacity currently under construction in primary markets. This figure marks a 42% increase from the previous year, CBRE reported.

“We haven’t seen any indication that the amount of data used is leveling off, so demand for data centers will increase in both primary and secondary markets,” said Pat Lynch, senior general manager of data center solutions for CBRE.

“Large-scale users are starting to move closer to end users to support technologies such as 5G, artificial intelligence and blockchain technology,” Lynch said in a written statement. “As this interest in edge computing and edge data centers continues, we expect to see a greater appetite for data centers from investors who are starting to consider data centers in the market. same category as the more traditional real estate sectors. “

Northern Virginia remained the most active data center market with a net uptake of 70.6 MW in the first half of 2021, more than triple that of Phoenix, the second highest market.

Net absorption totaled 142.7 MW in the seven main markets in the first half of the year, an increase of 3.4% compared to the first half of 2020.

Data center users rented more space in the first half of 2021 than in the second half of 2020, despite fewer agreements signed during this period. Phoenix saw more rental activity in the second quarter of 2021 than in any other quarter in the previous five years.

However, several markets, including Northern Virginia and Dallas, saw year-over-year absorption decline as some users consolidated their operations, CBRE reported.

Of the construction underway at the end of the second quarter, 317 MW (60%) has been pre-leased. Markets with notable pre-lease activity include Silicon Valley, where 70 MW (82 percent) of total MW under construction was spoken, as well as Dallas (17.5 MW), Chicago (17.1 MW) , New York Tri-State (13.1 MW). MW), Phoenix (6 MW) and Atlanta (3.5 MW).

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