CBRE : 2020 Houston Data Center Leasing Hindered by Challenges to Energy and Healthcare Sectors; Outlook Brighter for 2021

Spurred by Remote Work, Business Prioritizes Digital Infrastructure, Fueling the North American Data Center Market

Houston - March 18, 2021-The Houston data center market, driven largely by demand from international energy companies and regional healthcare providers, saw a drop in leasing activity in 2020, according to CBRE's latestNorth American Data Center Trends Report.

Houston had 3.8 megawatts (MW) of net absorption in 2020, down 76 percent from 2019, as energy companies and healthcare providers paused their IT spending as they grappled with a sharp drop in oil prices and unprecedented challenges, respectively. Despite this, the market's vacancy rate decreased to 22.9 percent, down from 24.4 percent at the end of 2019. The market remains attractive for data centers, with 9.3 MW under construction at the end of the year, nearly half of which is pre-leased.

'The Houston data center market was resilient in 2020, despite the overall business climate during the pandemic and the challenges the energy and healthcare sectors faced,' said Brant Bernet, senior vice president, CBRE. 'As the price of oil ticks up and companies across sectors execute digital transformation plans, we expect to see Houston data center activity increase this year.'

National Trends

Data centers, one of the fastest growing real estate sectors pre-pandemic, remained strong in 2020 as businesses reconfigured their digital infrastructure to improve their remote work capabilities, and tech giants and cloud service providers raced to meet consumer and corporate demand, according to CBRE.

The firm's latest research shows 329.6 MW of net absorption in 2020 across the seven primary U.S. data center markets. While down 11 percent from the peak in 2019, 2020 absorption was still higher than any other year on record. Meanwhile, vacancy fell to just 8.5 percent, despite an 11 percent growth in new supply.

'With data usage growing at an explosive rate, we expect data center demand to increase across both primary and secondary markets in 2021,' saidPat Lynch, Senior Managing Director, Data Center Solutions, CBRE. 'To capitalize on this growth, data center providers will look to deliver network and interconnection offerings to better connect business-critical applications, as well as to meet anticipated demand for evolving technologies like 5G, Edge computing and the internet of things-all of which will further fuel the data center real estate market.'

Top North American Data Center Markets

Top 10 Most-Active Markets:

Market	2020 Absorption	Market	2020 Absorption
Northern Virginia	217.2 MW	Phoenix	17.5 MW
Toronto	38.1 MW	Central Washington	14.5 MW
Dallas-Fort Worth	33.7 MW	Chicago	13.1 MW
Silicon Valley	26.6 MW	Montreal	11.0 MW
Atlanta	18.2 MW	Seattle	6.9 MW

Strong demand and an uptick in investor interest in direct investment due to the strong performance of data center REITs in 2020 resulted in a 457.8-MW data center construction pipeline in the primary markets, up 62 percent from the end of 2019. More than half of the current pipeline is pre-leased.

The markets with the most data center space underway include Northern Virginia (283.5 MW), Montreal (57 MW), Silicon Valley (50.1 MW), Central Washington (43.7 MW), Hillsboro, Oregon (40.5 MW), and Chicago (33.7 MW).

*The seven primary U.S. data center markets are Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix, New York Tri-State and Atlanta.