The Hillsboro market has the largest construction pipeline in the US, 87% of which is already preleased. CBRE’s new report highlights that this market is a hot spot for data centre interest for investors.
The Hillsboro, Ore. data centre market ranked fourth in the US and first among secondary markets for leasing activity in the first half of 2022, fuelled by increased demand from social media companies, according to a new report from CBRE.
Overall, the market had 37 megawatts (MW) of net absorption in H1 2022, already surpassing the 21.2 MW of net absorption recorded in all of 2021.
The appetite for data centre space in Hillsboro shows no signs of slowing down. Vacancy rates dropped to 7% from 15.2% year-over-year despite the addition of 30 MW of new supply in H1 2022 (fourth most in the US). The Hillsboro market will remain tight for the foreseeable future as 87% of the 228.8 MW of space under construction has been preleased. The delivery of this space will nearly triple Hillsboro’s inventory, which currently stands at 139.4 MW.
“Hillsboro has become a very attractive data centre market due to its growing collection of colocation facilities, expansive fibre network infrastructure, access to Asia-Pacific undersea cables and proximity to a primary Internet exchange point,” said Josh Ruttner, Senior Research Analyst, Data Center Solutions, CBRE. “As a result, available land has become increasingly scarce.”
National trends
CBRE’s latest North American Data Center Trends Report found that 352.9 MW of new supply went online in the seven primary US data centre markets in the first half of 2022, a 20% increase year-over-year.
Despite the influx of additional capacity, data centre vacancy decreased to an average of 3.8% across the seven primary markets in H1 2022 — down from 10.3% in H1 2021 — as large cloud users raced to secure space to accommodate anticipated future growth. Significant preleasing of space under construction in prior years also contributed to the large drop in vacancy.
For the first time since 2017, tight market conditions caused average asking rents to increase in both primary markets (5.9% to US$127.50 per kW) and secondary markets (2.3% to US$133.00 per kW). Primary-market vacancy will remain tight for the foreseeable future, as 73% (1,170 MW) of the 1,601.5 MW of the under-construction supply was preleased as of the end of H1 2022.
“Supply chain disruptions and a lack of available power and land in some major markets could delay new construction deliveries over the balance of the year and beyond,” said Pat Lynch, Executive Managing Director, Global Head of Advisory & Transaction Services, Data Center Solutions, CBRE. “As a result, we expect continued rising rents nationally and more occupiers turning to secondary and tertiary markets to meet their needs. These smaller markets will also continue to benefit from an increase in Edge data centre deployments, driven by broader adoption of AI, 5G and Blockchain technologies.”
Top US data centre markets
Northern Virginia remained the most active data centre market with net absorption of 269.3 MW — a 281% increase from H1 2021 — and more than quadruple that of Silicon Valley, the next highest market. Net absorption totalled 453.4 MW across the seven primary markets in the first half of 2022, nearly triple that of the first half of 2021.
Northern Virginia (219.5 MW) accounted for 62% of new primary-market supply delivered in H1 2022. Other markets with notable supply growth in the first half of the year included Silicon Valley (56.0 MW), Phoenix (37.5 MW), Hillsboro, Ore. (30.0 MW) and Atlanta (20.0 MW).
