2020 Real Estate Forecast

Posted on Jan 24, 2020

Data Center Real Estate Review 2019

Read our report that recaps 2019 market activity and highlights the trends that will shape data center real estate in 2020.

Download the 2020 Report (PDF) »

Overview of Issues Impacting Data Centers During 2019

  • Overall leasing activity, although significantly lower than in 2018, was consistent with 2017.
  • The slowdown in leasing can be directly attributed to the hyperscale tenants that Microsoft leads.
  • Northern Virginia felt the strongest impact given the huge increase in the year-over-year speculative inventory.
  • Renewals increased massively in 2019. Digital Realty(DLR) reported 1.7 mm square feet of renewals for the first nine months of 2019, which was 10% higher than in 2017 and 2018 combined.  The acquisition of DuPont Fabros in 2017 accentuated the combined companies’ lease expirations.
  • Renewals will continue during 2020, especially in Q1.
  • Publicly traded companies reported that, on average, retention rates exceeded 81%.
  • The overall slowdown in hyperscale leasing activity was partially offset by a rebound in enterprise activity.
  • Publicly traded companies reported an overall drop in rental rates for multi-tenant data centers (MTDCs) in 2019 through the third quarter.
  • Digital lead strong leasing activity in the Northwest.
  • Smaller colocation customers are paying significantly higher rental rates, particularly for renewals.
  • New Jersey achieved a large increase of more than 10 MW in leasing by financial firms.
  • Ridesharing companies and others created shadow inventory, particularly in the Bay Area.
  • More companies were looking at risk diversification by leasing outside of Northern Virginia. Is Atlanta the beneficiary?
  • Activity in Chicago has been focused on smaller enterprise users and renewals. Microsoft purchased 42 acres in January 2020 and Cyxtera master leased 130,000 square feet of property that Stack owns.
  • An uptick in leasing in Toronto and Montreal by US hyperscales has decreased the supply of MTDCs in Canada.
  • Several hyperscale companies acquired large parcels of land in the US to develop data centers.
  • The repatriation of on-premise data centers by companies leaving the cloud; myth or reality?
  • A slowdown occurred overall in investment sales activities in 2019 despite an uptick in buyers.
  • Investment activity increased in secondary markets.
  • The sale/leaseback of corporate data centers will increase in 2020 as several portfolios were taken off the table in 2019.
  • In addition to smaller edge data centers, a surge in regional data centers driven by companies seeking stronger links to their customers is necessary.
  • The retiring IT workforce will be replaced with younger decision makers who will spur changes that differ from those at traditional enterprise data centers.

2019 Highlighted Land Sales

Buyer Location $/Acre Total Acres
Microsoft  Elk Grove Village, IL $1.45 MM 36 *
Switch Las Vegas, NV $777,000 36
Microsoft  Goodyear, AZ $250,000 36
Digital Realty Ashburn, VA $2.14 MM 13
Coresite Santa Clara, CA $6.9 MM 3.8
Lightstone Santa Clara, CA $5.89 MM 1.8

* January 2020

Investment Activity 2019

Buyer Seller   Size SF Market Sales Price Comments
Landmark Infrastructure  Element Critical 1/19 150,480 Wood Dale, IL (Chicago) $13.5 MM Sungard
GI Partners NTT Data 1/19 180,000 Quincy, WA $50 MM NNN / Sale Leaseback
GI Partners NTT Data 1/19 1,082,673 Plano, TX $60 MM NNN / Sale Leaseback 70% Office
Databank (Legacy) PNC Bank 1/19 115,000 North Lafayette Twsp., PA $26.4 MM PNC 6.5% cap rate
CIM 1547 1/19 232,000 Orangeburg, NY $86.6 MM Partially occupied MTDC
Northington Huntington
Beach Investors, LLC
FLP Huntington
Beach, LLC
1/19 114,000 Various $82.975 MM 3 NNN Frontier Communications
Silver Peak & Legacy PNC Bank 2/19 387,000 Cleveland, OH $51.7 MM PNC leaseback
Landmark Dividend Goldcoast Data 2/19 62,966 Fort Lauderdale, FL $25.45 MM Flexential
Alinda Capital QTS 2/19 118,000 Ashburn/Manassas, VA $240 MM JV 6.75% Cap Rate
35711 Properties I, LLC DXC Technology 3/19 75,233 Rancho Cordova, CA $7.12 MM  
AGC Equity Ensono, Inc. 3/19 215,000 Kings Mountain, NC $70 MM  
T5 Charlotte, LLC T5 / Iron Point 4/19 146,000 Kings Mountain, NC $86 MM Recapitalization
Lincoln Rackhouse ByteGrid 5/19 73,297 Aurora, IL $20.5 MM Former CNA Insurance
Lincoln Rackhouse ByteGrid 5/19 214,006 Silver Spring, MD $34 MM Former Citi data center 
Lincoln Rackhouse ByteGrid 5/19 50,000 Lynnwood, WA (Seattle) $5.5 MM  
Woodbery Group JM Family 5/19 87,972 Alpharetta, GA $10.75 MM Datascan 3 Yr. Leaseback
Blackstone COPT 6/19 1,200,000 Manassas, VA $265 MM (7) NNN Powered Base Shells
Landmark Infrastructure   6/19 66,666 Charlotte, NC $18.4 MM 100% leased to Flexential through 05/24
Menlo Equities Lincoln Rackhouse 7/19 208,340 Marlborough, MA $33.3 MM Tierpoint/Lightower
CBRE Global Investors Lincoln Rackhouse 8/19 191,000 Chandler, AZ $72.75 MM INAP 100% NNN 
Sold in June 2018 for $39.7 MM
Macquarie Netrality 9/19 3,107,360 Various   6 Carrier Hotels
Mapletree Investments Digital Realty 9/19 1,376,000 Various $557 MM JV 10 PBB  6.6% Cap Rate
Mapletree Investments Digital Realty 9/19 703,847 Ashburn, VA $1.013 MM JV 3 Virginia MTDC  6% Cap Rate
Digital Realty Interxion 10/19 Company Various $8.5 BN 21-21.5  X EBITDA
SBA Communications New Continuum 10/19 80,000 West Chicago, IL $13.8 MM Colocation Facility
Stack Infrastructure Nationwide  Insurance 10/19 120,000 New Albany, OH $9.7 MM Tier III – Nationwide Leaseback
Blackstone Clarion Partners 10/19 228,110 Emeryville, CA $126 MM Multi-tenant DC, Telco and Office
Blackstone COPT 12/19 297,160 Ashburn/Manassas, VA $80 MM (2) NNN Powered Base Shells

Capitalization rates and EBITDA multiples are provided from sources deemed reliable.

Big Red Wines We Really Enjoyed During 2019

  • Terra Valentine Spring Mountain Cabernet Sauvignon 2014(N+1)
  • Celani Ardore Coombsville Napa Cabernet Sauvignon 2016(2N)
  • Leviathan California Red Wine 2016(N)
  • J. Lohr Pure Paso Cabernet Sauvignon Blend 2017(N)
  • Bella Union Napa Valley Cabernet Sauvignon 2016(2N)
  • Grand Napa Vineyards Rutherford Cabernet Sauvignon 2014(N)
  • Stewart Cellars, Slingshot, Cabernet Sauvignon 2016(N)
  • Au Sommet Atlas Peak Cabernet Sauvignon 2015(2N+1)

Largest Wholesale Turn-Key Leases During 2019

Tenant Market Provider (MW)
Cyxtera (Renewal) Multiple Markets DLR 300,000 SF
FaceBook (Renewal) Multiple Markets DLR 80 MW
Twitter (Renewal) Sacramento, CA NTT 27 MW
Twitter Hillsboro, OR DLR 12 MW
Twitter Atlanta, GA QTS 12 MW
Microsoft Santa Clara, CA COR  10 MW
Microsoft Toronto, Canada Urbacon 10 MW
Cyxtera  Elk Grove Village, IL Stack 130,000 SF
Bloomberg Piscataway, NJ DLR 90,000 SF
Dropbox Portland, OR Flexential 9 MW
ByteDance Ashburn, VA DLR 9 MW
Alibaba Northern VA DLR 7.5 MW
Linkedin Dallas, TX DLR 6 MW
AWS Northern VA IRM 6 MW
Nvidia Santa Clara, CA Vantage 6 MW
Box Las Vegas, NV Switch 6 MW
FedEx Las Vegas, NV Switch 5 MW
Cloud Provider Las Vegas, NV Switch 5 MW
Tenant Market Provider (MW)
Alibaba Northern VA CONE 4.5 MW
USAA San Antonio, TX CONE 4.5 MW
Microsoft Santa Clara, CA Stack 4.2 MW
Government Contractor Fort Worth, TX QTS 4.1 MW
Linkedin Northern VA Stack 4 MW
Facebook Dallas, TX QTS 4 MW
Uber Phoenix, AZ Aligned 4 MW
Dropbox Northern VA Vantage 3 MW
T-Mobile Plano, TX Stack 3 MW
Box Reno, NV Switch 3  MW
Bloomberg Piscataway, NJ DLR 2 MW
Linkedin Northern VA Vantage 2 MW
Express Scripts New Jersey DLR 2 MW
Toyota Dallas, TX CONE 2 MW
Workday Hillsboro, OR QTS 2 MW
World Bank Ashburn, VA QTS 2 MW
Uber Ashburn, VA QTS 2 MW
Oracle Toronto, Canada DLR 2 MW

For the largest wholesale transactions, the numbers set forth represent what is believed to be the total commitment of the lease agreement. Under construction refers to white space being built. These numbers do not contemplate expansions. Information is from sources deemed reliable.

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