North American data center pricing is reaching record highs thanks to strong demand but limited capacity. Per CBRE, the national average asking prices in 2023 rose to $163.44 per kW/month from $137.86 per kW/month. That’s an 18.6% year-over-year increase. More challenging, 2024 will likely see double digit growth occur once again in these asking prices.
Rising costs, increasing demand, and capacity constraints are making it increasingly harder for businesses to find data center solutions in almost all North American markets without putting added pressure on their budgets. If you’re feeling the squeeze, you’re not alone. Let’s dive into what’s driving these changes and explore some smart strategies to navigate them.
The Cost Conundrum: What’s Happening?
First off, let’s talk about the elephant in the room: the rising costs. Another recent CBRE report mentioned in Data Center Frontier, tells us that average asking rental rates in key North American data center markets have increased by 20% to 54% over the last eight months. The highest rent growth is occurring in low-availability markets like Chicago, Dallas-Ft. Worth, Northern Virginia, Phoenix and Silicon Valley.
So, what are the primary reasons? The first has to do with the intersection of soaring demand for digital infrastructure with limited supply. In hot markets like Phoenix, for example, rates rose 17% to 30% while in Northern California, rates rose 21% to 23%. Unfortunately, power constraints are delaying new construction of data centers and, per the CBRE’s brief, “are the biggest impediment to expanded data center supply.” That said, there’s another impactful reason costs are rising.
Across major North American markets, data center providers themselves are becoming increasingly interested in securing commitments for larger size deals. As a result, they’re saving their most attractive financial offers for that select group. For example, JLL has found that, on average, rates were 18% lower for deals with requirements above 5MW than for those under 250 kW. The needs of a business impact therefore heavily affect the final price that gets paid. As more companies migrate to the cloud and digital services proliferate, data center providers are both struggling to keep pace while looking to attract larger types of deals – all leading to price hikes for businesses of all sizes.
Why Vancouver is a Hidden Gem
While businesses seeking high-quality, affordable data center solutions in the big North American Tier 1 (and even Tier 2) markets continue to grapple with rising costs and lower vacancy rates, there are untapped opportunities in places like Vancouver that offer a more cost-effective solution without compromising on quality. Here’s why:
Affordable Energy: One of Vancouver’s standout features is its access to affordable, renewable hydroelectric power. In fact, Vancouver offers significantly lower energy costs compared to other major North American cities. This perk not only keeps operational costs lower for businesses seeking data center solutions, but also aligns with their individual sustainability goals—a win-win for minimizing one’s carbon footprint.
Strategic Location: Vancouver’s proximity to major tech hubs along the West Coast, such as Seattle and San Francisco, makes it an ideal location for businesses that need robust, affordable connectivity and fast, low latency transport to other North American markets.
Growing Business and Technology Community: With top industries including technology, film & TV, digital entertainment and VFX & animation, Vancouver offers ample opportunities for businesses to grow. In fact, Vancouver’s business and tech ecosystem is thriving – over 11% of the potential one million job openings in BC in the next decade will be in science and tech.
As you can see, Vancouver is an excellent, strategic location offering lower energy costs and a thriving economy for businesses to grow in. For those navigating rising costs and capacity issues, it makes sense to look beyond Tier 1 markets to those featuring lower energy costs, new capacity coming online, a thriving business community and a strategic location to other major markets. Vancouver delivers all of this in spades.
What You Can Do About It – Meet Spencer Building’s MMR5 and Colo5
When it comes to establishing a footprint in Vancouver, it’s best to select a partner that has a deep understanding of the local market and can provide customized solutions tailored to your specific needs. Here’s why Spencer Building, part of Vancouver’s iconic Harbour Centre campus, could be a great fit for you.
For over 30 years, the Harbour Centre campus has been Vancouver’s primary connectivity gateway between western Canada, the U.S., and the APAC region. Now, in response to rising demand for new colocation and connectivity space in North America, we’ve expanded our footprint into Spencer Building to meet the needs of service providers and enterprises in this market. Located right next door to Harbour Centre, with direct connections to all its existing Meet-Me-Rooms (MMRs), Spencer Building provides the connectivity and colocation space you need to unlock your full potential in Vancouver’s growing digital market.
Together, MMR5 and Colo5 MMR5 are more than just rooms – they’re gateways to unparalleled connectivity and rich opportunities for growth. With extensive fiber pre-terminated to all existing Harbour Centre MMRs, the possibilities of MMR5 are infinite. Colo5, paired with MMR5, offers 200kW colocation space for servers and networking equipment. Phase 1 features 100kW capacity with 12 full-size cabinets and 2 quarter cabinets. With Phase 2 set to roll out in Q4 2024, now is the time to secure your spot and position yourself for future success.
Step Into Your Future: Connect. Grow. Thrive.
Rising costs and shrinking capacity in North America’s data center markets are now an undeniable reality of life for businesses of all sizes. By looking past the traditional Tier 1 markets, and considering options in a strategic location like Vancouver, it’s possible to find quality colocation and connectivity space that offers quality and reliability without breaking your budgets.
Spencer Building provides an optimal solution in this regard. Combining heritage design with cutting-edge IT infrastructure, MMR5 and Colo5 are the first steps in creating a vibrant, digital-first campus that meets the growing digital demands of one of the hottest markets in Canada. By establishing your footprint in either space, businesses and service providers can position themselves at the forefront of innovation and growth in Vancouver. Embrace the boundless opportunities that await, where robust connectivity and enhanced scalability can propel you to new heights. Thrive in Vancouver’s vibrant interconnection ecosystem and set yourself up to take advantage of all the growth opportunities Spencer Building’s evolution offers.
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