Julie Whelan:
So we have one final sector to cover and I would like to end by talking about this alternative asset that is a quiet but strong performer: data centers, with more dependence on digital infrastructure due to the acceleration of remote work, which we've talked about, mobile devices and apps, and even artificial intelligence that has been dominating the headlines. This is an asset where demand seems to have no limits. To discuss this, I will be joined by Gordon Dolven, [Data Center Research]. Welcome Gordon.
Gordon Dolven:
Thanks for having me, Julie.
Julie Whelan:
So Gordon, you just wrote an awesome global paper on data center performance globally. Talk to us a little bit about your findings.
Gordon Dolven:
Yeah, data centers have performed incredibly well thus far through the year, and they look to carry that momentum throughout the rest of 2023. There are a couple of different dynamics on both the supply and demand side that are impacting the strength in digital infrastructure and data centers. On the supply side, vacancy remains incredibly low across the globe. So we looked at North America, Europe, Latin America, and Asia-Pacific, and the reason that vacancy is low is because right now there are some power issues in terms of availability that are delaying the timeline for projects to be put onto the market, which would help out inventory and supply levels. Additionally there's a lack of leasing availability alluding to that vacancy rate being low. But the byproduct of that is that asking average pricing rates across the globe have increased on average 5%-15%, and in some markets it's up 30% year over year.
Gordon Dolven:
There is one bright spot on the supply side. Sydney, Australia, grew their inventory number 30% year over year. And this is because, um, large legacy players and markets in Asia Pacific and Singapore and Tokyo and Hong Kong have had some issues with land availability, land pricing and power constraints. On the demand side, Julie, there is still a robust amount of appetite from cloud service providers and technology companies that continue to absorb space wherever they can get it. And artificial intelligence, which has been around in the industry for five to 10 years has continued to gain momentum with new startups entering the foray this year, and we're looking to see how much space they do want to take down throughout the rest of the year.
Julie Whelan:
Wow, interesting. Data centers may rival industrial in terms of the asset that's in favor. So there have to be some challenges. What do you see as the biggest headwinds that data centers actually have to battle against right now?
Gordon Dolven:
Yeah, the biggest issue right now Julie, is availability. So large corporations, if they're going from on-premises to co-location, they're struggling to find a turnkey solution with one operator in one market. So we're seeing across the globe a lot of occupiers having to segment out their requirement to different operators, to different regions, to different markets in order to fulfill the demand that they're seeking. On the power side, we still have some transmission and distribution delays and issues, but there are some bright spots that I do want to highlight as well, given that these headwinds are something that we can do something about. So recent federal legislation provided $2.5 billion to modernize our electricity grid here in North America. And I'm really proud of the fact that in digital infrastructure we're leading the way in terms of low-carbon and renewable-energy initiatives. So whether this is nuclear, wind, solar or hydropower, we are at the forefront of trying to bring on new renewable and low-carbon energy solutions for the industry. And we look forward to monitoring that the rest of 2023.
Julie Whelan:
Absolutely. Well, thank you Gordon. You mentioned two topics that we haven't talked a lot about this session, but which remain top of mind for our industry, and that’s sustainable green power and artificial intelligence. We could have another hour-long conversation just about those two things. So thank you for your comments. So that concludes our trip around the world to discuss commercial real estate sectors as we embark on the last half of 2023. Thanks to my colleagues for their education and insight today. And thank you all for joining our call. While the end of 2023 will likely see a softening in the economy, it will also bring us closer to a period in 2024 where more clarity should emerge. As you navigate the remainder of this year and beyond, we welcome you to reach out to the CBRE professionals on this call to answer any questions. We also welcome you to visit our cbre.com Research and Insights page to learn more about the topics we discussed today. And be sure to listen in on next week's episode of The Weekly Take podcast. Richard will be doing a deeper dive on some of the topics that we discuss today. Wishing you all health and wellness. Have a wonderful day.
