2022 Real Estate Forecast
Read our report that recaps 2021 market activity and highlights the trends that will shape data center real estate in 2022.
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Overview of Issues Impacting Data Centers in 2021
- Overall Multi-Tenant Data Center (MTDC) leasing activity during 2021 was as strong as 2020. Multi-market leasing activity by Meta (Facebook) contributed to the success of 2021 and this will continue during 2022.
- New products from the hyper-scalers, such as Amazon(burrows), and artificial intelligence contributed to this new activity.
- Developers with built-out data centers are able to fill in the gaps to meet the short-term needs of these companies that otherwise do not have time to build on their own campuses.
- While overall the activity continues to favor Northern Virginia, Hillsboro was second strongest market in the country during 2021 with strong leasing by Facebook, Twitter, Nvidia and Intel.
- In addition, Phoenix and Dallas each had record years for leasing and Chicago rounded out the top five.
- Microsoft had a marked decrease in its leasing activity in 2021, but it is still building several properties on their own that were purchased in 2020.
- Good leasing activity in 2021 driven by strong demand, limited existing supply and over-negotiating by tenants provided landlords with a seller’s advantage opting for better terms or stronger credit tenants.
- Hyperscale and larger enterprise users are demanding longer ramp times of space, power and land reservations and it will provide a dichotomy between developers who allow versus pay to play.
- 2021 saw an uptick in demand from enterprises but leasing activity remained sluggish. Some companies are adding smaller suburban disbursements (under 30 racks) to accommodate employees working from home instead of at regional offices.
- Metaverse is under construction on over 7MM square feet on their owned campuses in the U.S. expanding in Altoona, IA, Sarpy, NE, New Albany, OH, Gallatin, TN, Henrico, VA, Mesa, AZ, and Eagle Mountain, UT.
- During the past 10 years, enterprises building their own data centers has been limited. Cybersecurity concerns have seen an increase of financial firms contemplating building their own data centers or creating a “building within a building” as an alternative to using the cloud or colocation.
- Columbus continues to emerge as a strong tertiary market with its power base buildings leased by Amazon. Overall limited third party offerings and leasing.
- The Los Angeles area had a resurgence led by Serverfarm’s success after acquiring T5’s El Segundo property.
- Overall, the supply chain has experienced minor issues, but strong demand has led to increased labor costs. One potential concern that has arisen is the 24–36 months lead times on transformers used at utility substations.
- Overall investment activity in 2021 has topped all other years, driven by investors fleeing the hospitality, retail, and office sectors; the number of bidders including both U.S. and foreign investors reached a peak in 2021.
- A marked compression of cap rates on single- and multi-tenant assets was seen in 2021 (more than 100 bps in some cases); Two large portfolio sales accounted for 38 of the assets.
- Sale-leasebacks of corporate data centers increased in 2021, and there should be a significant uptick during 2022.
- Cap rates in data center sales are still not materially impacted by shorter-term leases.
- After eight years, edge data centers are still seeing only a fraction of the overall leasing activity.
- Cyxtera, Lumen, INAP, Cologix, Tierpoint, and their colocation peer group are expected to contribute to overall leasing activity during 2022.
- In 2017, there were 6 wholesale leases at least 10MW and none over 25MW; in 2020 there were 6 wholesale leases over 40MW and 17 that were 10MW or over. In 2021, there were 11 leases over 30MW.
- To accommodate these mega-leases, developments need to be much larger in the future. Winners will be those developers that build speculatively and can provide immediate plug and play solutions.
- These larger leases will drive larger investment transactions and we could see single properties fetching over $1BN.
- Environmental, social, and governance (ESG) concerns continue to dominate developers’ and tenants’ thought related to building and leasing properties.
Largest Wholesale Turn-Key Leases in 2021
| Tenant | Market | Provider | (MW) |
| Meta | Manassas, VA | Cloud HQ | 80 |
| Hillsboro, OR | DLR | 48 | |
| Meta | Houston,TX | CONE | 36 |
| Meta | Phoenix, AZ | CONE | 36 |
| Meta | Hillsboro, OR | QTS | 35 |
| Tik Tok | Leesburg, VA | Compass | 32 |
| Meta | Aurora, IL | CONE | 36 |
| Tik Tok | Ashburn, VA | DLR | 30 |
| Tik Tok | Ashburn, VA | Aligned | 30 |
| Meta | Ashburn, VA | Cloud HQ | 30 |
| Meta | Dallas, TX | Compass | 30 |
| Apple | Ashburn, VA | DLR | 15 |
| Apple | Elk Grove Village, IL | DLR | 15 |
| Microsoft | Phoenix, AZ | Edgecore | 15 |
| MSFT | Elk Grove Village, IL | Stack | 12 |
| Oracle | Chandler, AZ | 10 | |
| El Segundo, CA | Serverfarm | 10 |
| Tenant | Market | Provider | (MW) |
| Nvidia | Hillsboro, OR | Flexential | 9 |
| Intel | Phoenix, AZ | 9 | |
| wb3 | Dallas, TX | NTT | 6 |
| AWS | Itasca, IL | NTT | 6 |
| Nvidia | Reno, NV | SWCH | 5 |
| Uber | Goodyear, AZ | Compass | 5 |
| AWS | Chicago, IL | QTS | 4.5 |
| Intel | Hillsboro, OR | Flexential | 4.5 |
| Schwab | Phoenix, AZ | Stream | 4.5 |
| Schwab | Dallas, TX | NTT | 4 |
| Dell | Las Vegas, NV | SWCH | 3 |
| Dell | Atlanta, GA | SWCH | 3 |
| Apple | Austin, TX | SWCH | 3 |
| Sony | Dallas, TX | Carrier-1 | 3 |
| Hunington Bank | Grand Rapids, MI | SWCH | 2 |
| Las Vegas, NV | SWCH | 2 |
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.
Companies That Sold During 2021
| Seller | Acquirer | Total Price | 2021E EV/EBITDA | Offer Per Share | Number of Properties | Sq. Ft. | Occupancy Rate | Closing Date | Avg. Remaining Lease Term |
| Data Foundry | Switch | $415.6 MM | 19 | N/A | 4 | 650,000 | Undisclosed | 6/7/21 | undisclosed |
| QTS | Blackstone | $10 BN | 29.5 | $78 | 21 | 7.8 MM | 92.8% | 8/31/21 | 39 months |
| Coresite | American Tower | $10.1 BN | 29 | $170 | 25 | 4.6 MM | 83.8 | 12/28/21 | 50 Months (10 largest tenants as of 12/31/20) |
| CyrusOne | KKR/Global Infrastructure Partners | $11.5 BN | 25.5 | $90.50 | 50 | 8.6MM | 86% | Q2 2022* | 51 months (9/30/21) |
Capitalization rates and EBITDA multiples are provided from sources deemed reliable.
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.
Big Red Wines We Really Enjoyed During 2021
- Joseph Phelps Napa Cabernet Sauvignon 2017 (N+1)
- Trefethen Napa Cabernet Sauvignon 2017 (N+1)
- Robert Mondavi To Kalon The Reserve Cabernet Sauvignon (N+1)
- Chappellet Sonoma Mountain Cuvee 2019 (N)
- Coho Napa Cabernet Sauvignon 2016 (N)
- Celani Family Tenacious Red Wine 2017 (N+1)
Investment Activity 2021
| Buyer | Seller | Date | Size SF | Market | Sales Price | Comments |
| Stack Infrastructure | Hackman Capital | 1/21 | 55,189 | San Jose, CA | $15MM | |
| Vantage Data Centers | DR Stephens | 2/21 | 133,631 | Santa Clara, CA | $40MM | |
| Mapletree | 8011 Villa Park LLC | 2/21 | 701,321 | Richmond, VA | $208MM | |
| Equinix | GI Partners | 3/21 | 216,114 | Montreal, CN | $50MM | |
| Menlo Equities | GI Partners | 3/21 | 107,000 | Chicago, IL | $37.25MM | 10 year Tierpoint NNN – 6% cap rate |
| Blackstone | Vadata | 3/21 | 115,000 | Manassas | $18.9MM | |
| Serverfarm | T5/IPI | 3/21 | 116,737 | El Sequndo, CA | $71MM | |
| Starwood Capital | Digital Realty | 4/21 | 132,280 | Ashburn, VA | $88.13MM | |
| Element Critical | Skybox | 4/21 | 96,129 | Katy, TX | 5.65% cap rate | |
| Cologix | Stephens Group/vXchnge | 4/21 | 83,020 | Santa Clara, CA | $58.10MM | This sale included business operations |
| Divco West Services, LLC | Jamestown & Netrality | 5/21 | 223,000 | New York, NY | $135MM | Carrier Hotel managed by H5 |
| Blackstone/COPT JV | COPT | 6/21 | 432,000 | Sterling, VA | $119MM | (2) Powered Shells |
| Databank | Woodspear | 6/21 | 107,900 | Centennial, CO | $15MM | |
| CBRE Global Investors | Von Karman | 6/21 | 395,673 | Orange County, CA | $180.7MM | Cyxtera & AWS are tenants |
| USPP Sunrise | Lincoln Property | 6/21 | 33,560 | Sunrise, FL | $26MM | 18 years remain on 20 year lease |
| TBD | Lincoln Property | 6/21 | 74,000 | Nottingham, MD | $14.85MM | Comcast recently renewed |
| VADATA | Truist | 6/21 | 406,920 | Sterling, VA | $179MM | (2) Powered Shells |
| Mapletree | Sila (formerly Landmark Dividend) | 8/21 | 3.3MM | Various | $1.3BN | 29 Building Portfolio sale, est 5.2 cap rate |
| Exeter 1890-1900 | Digital Realty | 6/21 | 241,676 | Chandler, AZ | $19.225MM | Office Campus including 123,688sf Data Center |
| Legacy Investing/Invesco | Viawest | 8/21 | 101,324 | Plano, TX | Sale Leaseback by Flexential | |
| Novva Data Centers | Progressive Insurance | 8/21 | 178,000 | Colorado Springs, CO | $38.5MM | Partial Sale leaseback by Progressive |
| Databank | SKAE Group | 9/21 | 225,000 | Orangeburg, NY | $23MM | |
| DLR/Prudential | Menlo Equities | 9/21 | 1.06MM | Various | $581MM | 9 Building Portfolio, est 5.7 cap rate |
| Expedient | BCBS of Arizona | 10/21 | 45,000 | Phoenix, AZ | $11MM | 2.4 MW |
| Hana Fund | H&R Reit | 10/21 | 79,682 | Lithia Springs, GA | $101MM | Approximately 8 years remaining on PWC lease |
| WSP Burnham, LLC | KCMJ Investments | 10/21 | 66,685 | Milwaukee, WI | $4.66MM | Tenants include Tiepoint, Graff, Meridian |
| Vantage SDC (JV DBRG & VDC) | Vantage Data Centers | 10/21 | 175,000 | Santa Clara, CA | $539MM | 24MW with Microsoft & Nvidia as anchors |
| 1547/Harrison Street | 1547/CIM | 10/21 | 35,000 | Cheyenne, WY | ||
| 1547/Harrison Street | 1547/CIM | 10/21 | 66,204 | Chicago, IL | $27.4MM | 5.68 cap rate |
| 1547/Harrison Street | 1547/CIM | 10/21 | 232,000 | Orangeburg, NY | $132.5MM | 5.68 cap Rate |
| Five 9s Digital | Landmark Dividend | 12/21 | 49,720 | Kannopolis, NC | $11.4MM | NorthState Technology– 5.7% cap rate |
| The Hines Group | Digital Realty | 12/21 | 179,800 | San Jose, CA | $59.6MM | Rackspace leases 5.4MW |
| AP Wireless | Immedion | 12/21 | 84,000 | Columbus, IN | $8.3MM | Dartpoints leases entire property |
Capitalization rates and EBITDA multiples are provided from sources deemed reliable.
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