2022 Real Estate Forecast

Posted on Jan 25, 2022

Data Center Real Estate Review 2020

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 
Twitter  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
Google  El Segundo, CA  Serverfarm  10 
Tenant Market Provider (MW)
Nvidia  Hillsboro, OR  Flexential 
Intel  Phoenix, AZ   
wb3  Dallas, TX  NTT 
AWS  Itasca, IL  NTT 
Nvidia  Reno, NV  SWCH 
Uber  Goodyear, AZ  Compass 
AWS  Chicago, IL  QTS  4.5 
Intel  Hillsboro, OR  Flexential  4.5 
Schwab  Phoenix, AZ  Stream  4.5 
Schwab  Dallas, TX  NTT 
Dell  Las Vegas, NV  SWCH 
Dell  Atlanta, GA  SWCH 
Apple  Austin, TX  SWCH 
Sony  Dallas, TX  Carrier-1 
Hunington Bank Grand Rapids, MI  SWCH 
Google Las Vegas, NV SWCH

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  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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