Market Overview

Key Developments

Demand in Northern Virginia heads southward, creating ample opportunity for development in Richmond

Development around Northern Virginia is moving southward. Historically, most development occurred in Ashburn and Loudoun County, with additional opportunity for development in Manassas and Prince William County once supply in Ashburn became limited. As Manassas’s supply has become constrained in recent years, development is now heading further south toward towns like Culpeper and Fredericksburg. As a result, of creep southward and increased subsea cable availability in Virginia Beach, Richmond has emerged as a strong area of opportunity. The city lies strategically between Virginia Beach and Northern Virginia, and is able to leverage the connectivity advantages of both. Multiple providers and hyperscale companies acquired land around Richmond in mid-2023, resulting in nearly 2 GW of potential planned projects in the queue. One hyperscale company alone has over 4,500 acres acquired or under contract between Ashburn to Richmond.

3Q 2023 Northern Virginia Development Activity:

• NTT completes newest 36 MW data center on Gigabit Campus, VA6, fully pre-leased prior to delivery.
• Microsoft acquires a 14-acre parcel in Sterling for approximately $1.1 million per acre where it intends to construct a new data center.
• AWS active in permitting and site acquisition in multiple locations throughout Loudoun, Culpepper, Louisa, Stafford, Fairfax, and Prince William Counties.

Key Developments

Impact of Cyxtera bankruptcy still uncertain

After declaring bankruptcy in June of 2023, Cyxtera has rejected leases at multiple facilities including two of Prime DC’s facilities in Santa Clara. Currently, Cyxtera’s assets and outstanding debts are under review through an ongoing litigation process.

Providers actively finding ways to reduce carbon emissions

Colocation and hyperscale providers in the area are among the first to employ some carbon reduction strategies. Vantage has tested the use of Hydrotreated Vegetable Oil, a biofuel, at a site in Cardiff and is now moving to replace diesel generator fuel with HVO in Santa Clara. Switching from diesel to HVO reduces generator lifecycle carbon emissions by 65-90%. Microsoft looks to reach its goal of being carbon-negative by 2030 by removing carbon directly from the air through companies like Heirloom Carbon.

3Q 2023 Northern California Development Activity:

• STACK Infrastructure proposes SVY03A, a 2-building campus with an on-site substation located at 26203 Production Avenue.
• Avaio Digital Partners purchases 101.7-acre, Delta View Golf course at 2232 Golf Club Road, Pittsburg, California for $16.7M with intent to build a data center campus ($164,988/acre).
• Microsoft files to develop two single-story buildings and a substation at 1657 Alviso-Milpitas Road in San Jose. The 64.5-acre property was acquired in 2017 for $73.2M (1.13M/acre).
• Cerebras AI, an AI training and computing company, agrees to 9 MW deployment in Colovore SJC02 over the next 12 months.
• Rowan Digital Infrastructure plans “Matterhorn” data center 45 miles east of San Francisco on 29.77-acre plot.
• Microsoft signs a long-term contract with Heirloom, a San Fransisco-based, direct air capture company to remove 315,000 metric tons of CO2 from the air over a multi-year period.

Key Developments

California pushes to stay at the forefront of sustainability movement

California is seeking to pass legislation requiring public and private businesses making more than $1 billion annually to report direct and indirect emissions. The bill is still in early stages and would need to pass the state senate and Governor Gavin Newsom’s desk before it would go into effect. If approved by 2025, it would require companies to disclose direct emissions by 2026 and indirect emissions by 2027.

Key Developments

Absorption remains low due to a lack of available and planned supply

Toronto's tight supply has led to fewer wholesale and hyperscale transactions in the market. There are few pockets to fit wholesale workloads. Users across Canada have few options for current growth and are seeing less data center development than in the United States. Each market in Canada has a specific issue that has limited growth. In Toronto, the issue continues to be a lack of available real estate in desirable areas and severe competition with the booming industrial market. This mixture of factors leads to higher prices and compromised locations if the latency is far away. Users and providers are still interested in Toronto, but the current climate of the market has led to lower absorption numbers.

Key Developments

New areas of opportunity for growth in Frankfurt

With demand outpacing supply, Frankfurt continues to see significant pre-lease activity. Operators continue looking for opportunities for new sites, as well as acquiring existing brownfield sites for development. The regeneration of the 180-acre Greisheim Industrial estate will offer additional space for campus developments, with the first due to be operational in 2026. The government has yet to pass the new Energy Efficiency Act, which could have significant implications on operators and new facilities.

3Q 2023 Frankfurt Development Activity:

• CyrusOne plans to develop two additional facilities in Frankfurt, FRA6 and FRA7.
• STACK Infrastructure secured $250 million in structured debt funding to support the company’s development pipeline.
• Australia’s largest pension fund, AustralianSuper has acquired a significant minority stake in Vantage’s EMEA platform. The $1.6 billion investment will support the provider's continued expansion across the region.
• In an undisclosed deal, Digital Transformation Capital Partners (DTCP) has become the majority shareholder of Maincubes after acquiring an additional stake in the company from co-shareholder Art-Invest Real Estate.

Key Developments

• The Tokyo and Osaka data centre markets continue to grow and expand, with hyperscale driving the demand profile and enterprise still a source of steady demand
• The Tokyo market was worth USD $2.3b in 2022 and is projected to grow 7% y/y to USD $2.5b in 2023, while the Osaka market was valued at USD $544m in 2022 and projected to grow 19% y/y to USD $648m in 2023
• Hyperscale cloud makes up the majority of the current demand profile in Japan, and the hyperscale-oriented portion of the market, currently 37% in Tokyo, is expected to account for over 50% by 2026
• In Osaka, this portion of the market is about half and expected to be over 60% by 2027
• The demand profile in Japan is healthy, but hyperscale platforms are not using colocation exclusively
• Land for data centre development is not easy to acquire without extensive local market knowledge and there are labour shortage issues, along with multi-year backlogs in power substation infrastructure construction
• Timelines for data centre builds have been pushed out as a result
• These realities have pushed hyperscalers to work directly with real estate developers and has shifted some demand to the self-build and build-to-suit category
• Japan is still at a very early stage of development when it comes to cloud and outsourced infrastructure adoption and there are no signs that a domestic Japanese cloud platform will be built
• The major US and China-based hyperscalers continue to pursue this market aggressively and they will require capacity that exceeds what they can reasonably self-build