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Inward Investment Guides
The Gap Between Data Center Supply and Demand
Why is there such a low supply of data center sites compared to demand?
Brian Oley, Vice President of Mission Critical Solutions, Jones Lang LaSalle
The market for U.S. data centers has shown some very interesting behavior over the past few years. Most notably, it has experienced a classic supply and demand imbalance, which has perceptually defied all economic logic, creating a high and increasing demand situation with a concurrent state of constant or sometimes diminishing supply. Multiple sources of research statistics tracking the industry suggest that this gap will progressively continue to spread further apart.

So the big question is, why does this gap exist? and, more importantly, will it continue to exist? The answer is astonishing for the traditional real estate marketplace, where conventional wisdom dictates that if there’s an existing need, fill it. For anyone who has conducted a national search across the United States for data center space over the last couple of years, this imbalanced deficit is no surprise. The increasing demand for data center space and the simultaneous constrained supply is no doubt a reality.

Firms expecting a perfect, single-tenant, fully operational data center facility from the marketplace are in for a revelation. The common initial thought from a data center user looking for space is, where can I find a left-over facility from the dot com bust or the current economic woes? The fact is that there is no real supply of single tenant data centers. The last of the favorable existing facilities were absorbed in 2005. The few left on the market are either too expensive to retrofit or virtually obsolete by today’s technology standards.

This brings us to what I like to call “The State of Data Center Availability in the U.S.” The short answer, as noted above, is easy: there is no real availability. Developers, due to the credit crunch, are developmentally constrained due to the high capital associated with these facilities and the lenders' inability to establish credibility with this industry (hesitations resulting from the late '90s tech boom). Firms that need space yesterday are forced into co-location and data center wholesale space (potentially sacrificing some potentially preferred control) to fill the void. What we have seen in the U.S. data center market is firms paying a premium for a smaller space than initially desired because of the current demand. We’ve then seen the internal real estate and technology arms design a long-term strategy including plans for a build-to-suit.
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