Sunday, October 2, 2022 Oct 2, 2022
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CRE Opinion

Your Data Center Needs May Be Five Years Away, But You Need to Lease Them Tomorrow

Panic-buying is adding to scarcity of essential space and products, says JLL's Curt Holcomb.
By Curt Holcomb |

The data center industry in Dallas and across the country is one that was picking up steam at a consistent pace for years, until the market exploded with a record year of sales and output in the wake of COVID-19. 2021 saw, as reported in JLL’s H2 2021 Data Center Outlook report, absorption reached a record-breaking 885.7 MW across the U.S., including a 173 percent increase in DFW. This spike in momentum, paired with a host of economic factors is putting additional pressure on companies to proactively secure this essential part of their real estate portfolio as the world becomes more and more reliant on digital storage and information.

Over the course of the last 6-9 months, the North Texas market saw a shift from an oversupply of data center capacity to a stark undersupply. Panic buying by major cloud service providers and hyper-scalers of large swaths of capacity holdings (many purchasing at projects that haven’t even broken ground) is fueling this paradigm shift.

For the providers in charge of building and delivering products, issues with the supply chain have forced construction time to run longer, even double in many cases. What used to be a 6-9 month build time is now 12-18 months. Providers simply can’t build data center space fast enough to meet the demand. Even more, hyper-inflation is wreaking havoc on construction materials such as electrical and power equipment.

To make matters even more dire, we are seeing a land availability shortage in many metropolitan areas across the US that have long been tied to the data center industry. Our backyard in North Texas is no exception, and we see this replicated in major hubs across Northern Virginia, Chicago, Phoenix, the Pacific Northwest, and Silicon Valley. Quality plots with access to critical infrastructure and are for sale are becoming rare. This means the market will have an increasingly hard time building and delivering a product between 24 and 36 months.  

Given the many varied hurdles in today’s data center market, we are preparing our clients to think ahead. To think in terms of their needs in preparation for a future with far fewer available options. Even Fortune 500 enterprise users, who typically lease less space than the major cloud service providers and hyper-scalers are feeling the pressure and are working quickly to secure the amount of capacity they will need over the next five years, right now.

To put it bluntly, if your business will need data center access but hasn’t started thinking about what your needs will be in 2027, you’re already behind. It’s just about guaranteed that your space needs and the price of that space are going to increase over the next 3-4 years, so take this as a sign to get started today.

Curt Holcomb is an executive vice president with JLL’s global Data Center Solutions practice team.

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