Demand Remains Strong in Key Markets

Data center demand is outpacing supply across the United States and pricing remains strong in key markets, according to the latest analysis by commercial real estate specialist Grubb & Ellis.

In a presentation Tuesday at  DataCenterDynamics Chicago, Jim Kerrigan of Grubb & Ellis said more than 20 megawatts of data center critical load was leased in the third quarter, the strongest activity thus far in 2009. Kerrigan, the director of the data center practice at Grubb & Ellis, said demand is outpacing supply by "three-fold."

Chicago is Hottest Colo Market
Kerrigan said downtown Chicago is the hottest colocation market in the country, while northern Virginia is seeing the strongest activity in leasing of wholesale data center space.

Kerrigan noted that the Chicago market is really two markets, with strong demand and limited supply in downtown, while larger blocks of space are available in the suburban market due to new construction. Driven by strong demand from financial trading firms, data center occupancy in downtown Chicago is pushing 95 percent.

In northern Virginia, supply is limited through the remainder of 2009, but several new projects will come online in early 2010, including new data center space from Digital Realty Trust, Power Loft, CoreSite and IT Server.

Big Issue: Lease Expirations
The imbalance between supply and demand has been the key focus of the data center real estate market. But Kerrigan says the renegotiation of existing leases looms as a huge issue for the industry over the next several years. He estimates that leases representing 32 percent of all leased data center space in the U.S. will expire between now and 2013.

A key issue is that while many older leases were negotiated based on square footage, many deals are now being negotiated based on critical power load. Tenants and their data center landlords will need to address this market shift in reworking leases, Kerrigan said.