Large Users Continue to Move Out of State, According To CBRE Report
Southern California— High power costs, elevated tax rates, a lack of incentives and high natural disaster risk are all contributing to the out-of-state migration of large data center users and the increasing focus on smaller, retail co-locations in Southern California, according to a new report by CBRE Group, Inc.
With just 2.6 megawatts of absorption in 2016, the overall vacancy rate for existing wholesale data center space in Southern California dropped to 18 percent in 2016 from 21.1 percent a year ago. In contrast, net occupancy gains are as high as 84.4 megawatts and vacancy rates below 5 percent across other major U.S. data center markets. In Southern California, most data center requirements average fewer than 300 kilowatts.
In response to the smaller average transaction size, traditional large wholesale co-location operators — facilities that provide space, power, cooling, and physical security for the server, storage, and networking equipment of other firms — are shifting their operating models at Southern California facilities. T5 Data Centers recently launched its “Enterprise Services” product, a retail co-location and cloud/managed services solution at its T5@LA facility, offering full-service solutions as small as a single rack. CoreSite continues to have success with more retail-sized deployments at its 900 North Alameda (LA2) and One Wilshire (LA1) locations where many tenants lease individual cabinets or cages in a larger shared area.
“With an economy and population base as large as Greater Los Angeles, there will always be a need for some portion of the data center to remain within proximity to the end-user,” said Kristina Metzger, Southern California market leader of CBRE’s Data Center Solutions. “What we are seeing, however, is a move of all applications which can operate just as efficiently at a distance, to more cost-efficient markets and regions. The financial savings and operational benefits are too substantial to justify keeping everything here in Southern California.”
Nationwide, there are currently 271 Megawatts under construction in major markets, more than 160 megawatts of which are being delivered on a speculative basis. The largest volume of construction is in Northern Virginia, 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.