Mega-Deals by Meta, TikTok Boost Data Center Leasing in 2021

Social networks had a big appetite for server space in 2021, making it another blockbuster year for U.S. data center developers, according to a new report from a real estate firm.

Social networks Meta (Facebook), Twitter and TikTok set the pace, accounting for the 11 largest leases of the year. These deals were all for 30 megawatts or more of capacity, as the rapid growth of the Internet economy creates demand for larger and larger data centers, according to Jim Kerrigan of North American Data Centers, who tracks wholesale leasing activity in the data center sector.

Kerrigan noted that in 2017 there just 6 wholesale data center leases of at least 10 megawatts (MWs) and none of more than 25 MWs. That has changed dramatically over the past two years, with 6 wholesale leases over 40 MWs in 2020, and 11 deals of 30 MWs or more in 2021.

“To accommodate these mega-leases, developments need to be much larger in the future,” said Kerrigan. “Winners will be those developers that build speculatively and can provide immediate plug-and-play solutions. These larger leases will drive larger investment transactions, and we could see single properties fetching over $1 billion.”

Meta is Both Buying AND Building

The largest tenant in the data center business was Meta, which leased 283 MWs across six markets, including the year’s largest lease for 80 MWs in Manassas, Virginia, according to North American Data Centers. This massive leasing is above and beyond Meta’s in-house construction program, as it pursues a strategy of building huge data center campuses in remote areas, while leasing space from developers in the largest data center markets.

Meta currently has 47 data centers under construction, the company said recently, reflecting the extraordinary scope of the ongoing expansion of world’s digital infrastructure. That number appears to include both new construction and leased space, as Meta builds capacity for its Facebook, Instagram and Messenger social networks while laying the groundwork for future metaverse applications.

“Multi-market leasing activity by Meta (Facebook) contributed to the success of 2021, and this will continue during 2022,” said Kerrigan.

TikTok continued its leasing spree in Northern Virginia, with three large leases across Ashburn and Leesburg totaling 92 megawatts of capacity, the report said. In 2020 the social network leased 134 megawatts of space in “Data Center Alley” in Ashburn. TikTok’s focus on Ashburn, the most connected spot on the Internet, likely reflects its appetite for network bandwidth to deliver its popular short-form videos showcasing music, dance and humor.

Other notable developments reported in the Data Center Real Estate Review of 2021:

• Twitter was the other social network to make a splash in the leasing market, taking down 48 megawatts of capacity on the new Digital Realty campus in Hillsboro, Oregon.
• Apple was back in the market , adding 15 MWs apiece in Ashburn and Suburban Chicago.
• It was a subdued year of leasing for Microsoft, which is usually one of the most active players in the wholesale market, with just one lease on the list (12 MWs in Elk Grove Village in Suburban Chicago. Microsoft could be digesting 2020’s big gulp of about 225 MWs of leasing.

Markets: Virginia Still on Top, But Gains for Hillsboro

As usual, the market with the most activity was Northern Virginia, with large leases in Ashburn as well as the fast-growing sub-markets in Manassas and Leesburg. CloudHQ, Compass Datacenters, Aligned and Digital Realty all landed jumbo-sized leases in the region.

The hot up-and-coming market is Hillsboro, the suburb of Portland that is home to a growing cloud cluster. The growth in Hillsboro (which DCF projected in a 2020 market report), has been sparked by a favorable cost environment – including a prominent enterprise zone and Oregon’s business-friendly tax policies – as well as a climate that’s ideal for keeping servers cool.

The building boom in Hillsboro is translating into active leasing and pre-leasing, including major deals for Digital Realty, Flexential and QTS which landed a 35-megawatt lease with Meta/Facebook. That deal could prove to be much larger over time, as QTS is seeking up to 250 MWs of power from utility PGE to support Facebook’s future growth.

As large Internet companies prepare for years of growth, they are seeking larger campuses to provide long-term runway for growth.

“Hyperscale and larger enterprise users are demanding longer ramp times of space, power and land reservations,” said Kerrigan, adding that it could lead to divergent strategies in which some developers optimize for mega-deals and phased growth for tenants, while other builders seek to use new to meet short-term market demand.