CAPRE Exclusive: CBRE’s Ben Rojahn Talks New Construction, Capital Markets, Demand, Supply and M&A at CAPRE’s Carolinas Data Center Summit
CHARLOTTE, NC – CAPRE’s Carolinas Data Center Summit put its best foot forward by kicking off with a keynote address by Ben Rojahn, Vice-President at CBRE. “State of the Data Center Industry in North Carolina, South Carolina and Emerging Southeast Markets” started broadly before zooming into the regional landscape, and below we highlight some of Rojahn’s frank, yet spot-on, perspective and observations.
He began by touching on some of the over-arching trends in the national data center landscape. “There’s huge demand for the hyperscale folks — though he wouldn’t try to put a definition on that term. “A hyperscaler can put a small presence in a retail colo operator’s facility They could also take a 100+ MW facility for themselves. Typically buildings that are dedicated to hyperscalers are designed differently than those built for enterprises,” explained Rojahn.
“303 megawatts were leased in 2018 in total across the county, in all of the primary markets (including all enterprise and hyperscale capacity leased in primary markets).” he offered. “I’ll touch on the macro-U.S. trends first and then boil it down to the Carolinas. 322 megawatts were delivered by colocation providers, and across the country that translates to about 11% vacancy rate nationally.”
“In 2019 there are over 500 megawatts under construction currently, of colocation space. Enterprise requirements, colocation requirements are getting smaller due to the hybrid nature of them,” continued Rojahn. “And rents are relatively staying steady. We used to quote the average rent on a per megawatt basis – as in, what would someone pay per megawatt? And that went to a half of a megawatt, and now I noticed that in our most recent research report, at the year-end of 2018, it was down to 250 kilowatts. So that rental rate is 120 to 140 per kilowatts. But it’s interesting to see how our research folks have reduced the average deal size at the quoted rate.”
Next, Rojahn moved onto the capital markets. “In the investment capital market, cap rates are dropping,” he shared. “In the markets as a whole, or the seven primary markets, notably including New York City and New Jersey, there is still a little bit of leasing momentum there. I think there are still financial services requirements that are going out to Northern Virginia, but they maintain some positive leasing momentum there.”
According to Rojahn, some new product is being delivered by colocation providers in Atlanta and Phoenix, as well as a little bit of oversupply in Chicago. “I understand there is a hyperscaler that did not take down a chunk of space, and their vacancy rate is about 10%,” he divulged. “Finally, Northern Virginia is of interest to everyone, just because the market is so huge, vacancy is low, and proximity to North Carolina is pretty immediately, relatively speaking.”
Next up for discussion were supply and demand trends. “Northern Virginia far exceeds the other markets – Northern Virginia’s leasing and construction exceeds all of the other markets combined,” asserted Rojahn. “I spoke to a provider there last week and they are delivering a 94-megawatt spec building. Another is delivering 36-megawatt, two-story building there.”
A lot of folks are getting land positions in those markets, according to Rojahn. “There’s not a lot of land availability, so you’re even seeing people buy and just hold the land,” he explained. “And there is a lot of product being delivered in Northern Virginia, and I think there’s a question as to whether or not there is enough demand in the market to absorb everything that’s being built. Some of the hyperscalers need to exercise their expansion options in order for that market to remain in equilibrium. The vacancy rate, I think in our last report, was 3.7% — which is very low.”
Finally, Rojahn wrapped up his introductory remarks by touching on M&A activity. “A lot of capital is still flowing into the market,” he shared, pointing to international investments, as many mentioned previously on another panel, and a lot of sale-leaseback activity. “There are some full sale-leasebacks and some partial sale-leasebacks to colocation providers and operators. Infrastructure funds are coming into the market, diversifying their holdings and buying data centers as assets that they can hold for the long term.”
For more from Rojahn, check out previous CAPRE Insider Reports: