DFW Data Centers See Lowest Vacancy Rate In 2 Years As Pandemic Increases Corporate Data Needs
When the coronavirus forced workers to stay home and social distance with the help of Zoom conference calls, e-commerce and on-demand entertainment, Dallas-Fort Worth data centers started to run counter to the rest of commercial real estate — demand went up.
"In 2020, we actually had a pretty strong amount of demand, and a lot of that in the first quarter was driven by what was going on with COVID-19, as the coronavirus news was spreading even before it got to the U.S.," CBRE Vice President of Data Center Solutions Haynes Strader said.
The Dallas data center market was in a pretty great but somewhat wobbly spot before the pandemic hit. Cushman & Wakefield ranked DFW as the third-strongest data center market in the U.S. in February, but absorption had slowed to 25.8 megawatts in 2019, making some experts concerned about oversupply.
But that has picked back up since the coronavirus came to the U.S. The DFW data center market recorded 14.5 megawatts of net absorption in the first half of 2020, driving vacancy down to 17.6%, the lowest reported DFW vacancy rate in two years in the data center sector, according to a CBRE report drafted by Strader.
This quick drop from CBRE's previously recorded vacancy rate of 19.2% is attributed to a sudden rise in data center usage caused by businesses having to turn most of their employees into remote workers in the first half of the year. Retailers and restaurants also had to enhance their data capabilities as online ordering and delivery services took over traditional in-house dining and shopping.
"We had a lot of global companies that were being impacted and very quickly realized they needed to provision for both computer and network infrastructures to support work from home, as well as disaster recovery services and just general services to support our remote workforce," Strader said.
Data center provider Aligned entered the pandemic with infrastructure designed to quickly scale to meet sudden usage surges.
Aligned has a large center operating in Plano as well as centers in Phoenix, Salt Lake City and Ashburn, Virginia, and was already shopping North Texas for more data center space when the pandemic hit.
Chief Innovation Officer Phill Lawson-Shanks said the coronavirus caused the local data market and corporate users to turn a major corner, and at this point, it's unlikely anything is going back to the way it was before even if the coronavirus goes away.
"It has forced people to think differently about where they are in the world in order to be productive in whatever business they are operating in," Lawson-Shanks said.
"We are positioning our infrastructure at key locations around North America and Europe to be ready and able to scale to meet those demands. I think things have shifted, and I think businesses, because they have been forced to work in this fashion, they are going to continue to work this way."
Involta, a firm that provides clients with cloud, data center and IT consulting services, also noticed a change in demand that could stay for decades to come.
"Most of the [chief information officers] that I talk to ... some of them were in organizations where it was 100% engagement from the office, so there was no work-from-home option," Involta CEO Bruce Lehrman said. "And then one day, 90% of their employees are working from home, and it works out pretty well. What I’ve heard from those CIOs [is that] they don’t think they will ever go back to being 100% in the office."
As a result of this change, demand for co-location, cloud and other data solutions will expand; and with this growth in bandwidth, data centers, like industrial, are becoming a more attractive investment prospect as a whole.
"We are seeing an increase in investment dollars with regards to companies wanting to purchase data centers," CBRE Data Center Solutions Group associate Mikey Jaillet told Bisnow.
While there's still uncertainty about how much office work will come back when the coronavirus goes away, CBRE analysts say the rapid shift to online delivery methods put data center operators and owners in a loftier position this year.
"Our national crisis has absolutely brought to the forefront the importance of data center needs," CBRE Senior Vice President of Advisory & Transaction Services and Data Center Solutions Group member Chris Herrmann said.
"If [data] was second, third or fourth on the list of importance in organizations' decision-making structures, it has moved up, and that's only going to improve and help our industry."