Data Center Fundamentals

As highlighted in the global section, the COVID-19 pandemic has accelerated many of the demand trends among data centers — most noticeably in the areas of remote working, social and entertainment streaming and e-commerce. In the United States, Green Street Advisors estimates25 that e-commerce penetration will have risen from 11% in 2019 to 15% by the end of 2020, driven by stay-at-home orders that have converted many consumers to e-commerce.

Three of the four largest cloud providers internationally, as well as several of the largest third-party data center operators, are headquartered in the United States. The companies have been at the forefront of driving data center demand globally and domestically and have played a key role in shaping the development of the U.S. data center market.
Overall data center demand growth has been solid in recent years, keeping average vacancy rates in the United States at 8 to 12% since 2014. Driven by expectations of continued leasing demand from cloud service providers, supply completions have been increasing faster than demand, and vacancy has been on a gradual uptrend since 2017. This has weighed on rental rates, which have moderated in recent years to an average of US$126 per kW per month (exhibit AM1).

We expect fundamentals to improve and help rental rates stabilize, with data center demand being pushed upward by the COVID-19 pandemic. Furthermore, the supply pipeline remains moderate in most markets, with the only exception being Northern Virginia, where construction has picked up significantly.