In 2019, as it happens once every few years in top data center markets, Northern Virginia – the biggest of them all – had a supply-demand imbalance.
Developers had built a lot of new data center capacity, and there were some concerns that demand wouldn’t keep up. The concerns weren’t huge. There was still more capacity leased in 2019 in Northern Virginia than anywhere else in the country. It was just less than in 2018.
The region is one of the most desirable data center markets in the world, and even if new data center space doesn’t get filled up immediately, it’s unlikely to stay unclaimed for a long time.
Still, rental rates were down somewhat, and investment analysts were asking publicly traded data center providers’ executives on quarterly earnings calls about the market’s health.
The imbalance lingered through early last year. Then, Microsoft and ByteDance (the Chinese company behind the fastest-growing social media platform TikTok) each signed four massive data center leases, all in Northern Virginia, absorbing much of the excess supply and balancing out the market.
That’s according to Jim Kerrigan, principal of the real estate broker North American Data Centers. We interviewed him recently about the latest US data center leasing trends, including in Northern Virginia, on The Data Center Podcast.
“They were all very aggressive transactions and that absorbed a lot of the space,” Kerrigan said. “The rental rates were very low.”
Northern Virginia saw wholesale data center rental rates range from $85 to $120 per kilowatt per month in the first half of 2020, according to a report by the real estate services giant CBRE. The low end of that range was lower than anywhere else in the country.
But what the leases lacked in rent per kilowatt they made up in scale.
Microsoft leased nearly 150MW of capacity total in Virginia last year, including 60MW from CloudHQ in Manassas, 40MW from Digital Realty in Ashburn, 24MW from CyrusOne in Sterling, and 22MW from NTT in Ashburn, according to Kerrigan’s annual data center real estate market update.
ByteDance wasn’t far behind, leasing north of 130MW, including 54MW from Aligned Energy, 52MW from Digital Realty, and another 20MW from Digital Realty in Ashburn, as well as 8MW from Vantage Data Centers in Sterling.
Together, the two giants leased about 280MW of data center capacity last year, all in Northern Virginia, contributing to yet another record year for data center leasing in the US, which saw close to 700MW of capacity leased total. Northern Virginia was responsible for more than 500MW, Kerrigan said.
And the data center sector in Virginia isn’t showing signs of slowing down. There is “about couple hundred megawatts” under construction in the region now, Kerrigan said. “I’m pretty sure that some of it has already been spoken for by some of the biggest customers.”
If things continue the same trajectory, the market may again get out of balance, but in a way that’s opposite to what it was like early last year.
“I feel like there’s a pretty good supply-demand balance there now,” Kerrigan said. “But that remains to be seen.” If Northern Virginia “has another monster year like last year… they’re going to have some issues there with not having enough supply.”
We discussed the state of play in Northern Virginia and several other big trends in the US data center real estate market with Jim Kerrigan on The Data Center Podcast. Have a listen here or anywhere you get your podcasts (Apple Podcasts, Spotify, Google Podcasts, Stitcher)