Announcer: Welcome to another edition of Not Your Father’s Data Center podcast, brought to you by Compass Datacenters, we build for what’s next. Now here’s your host. Raymond Hawkins.
Raymond Hawkins: Welcome to another edition of Not Your Father’s Data Center brought to you by Compass Datacenters. I’m Raymond Hawkins, your host. And today we are joined by CBRE’s vice-president Haynes Strader. Haynes out of Dallas, Texas. Haynes, thank you for joining us today.
Haynes Strader: Yeah, thanks for having me. This is great.
Raymond Hawkins: This is our second edition with you. We’re grateful to have you join us again here as we wrap up what may go down as the craziest year of our lifetime.
Haynes Strader: Yeah, it’s been one for the books, for sure.
Raymond Hawkins: Yeah, not withstanding the global pandemic. I believe you welcomed a new addition. So let’s focus on that for a minute if we can. That’s big news for 2020.
Haynes Strader: Yeah, it’s been a crazy year for sure. And we’ve been blessed to have a little girl Charlotte, join us here the last couple of months and she’s six weeks old now, and she’s doing great. She is starting to ask about kilowatts and megawatts and [crosstalk 00:01:19]
Raymond Hawkins: Yeah, good, good, to get her in the Data Center business early, good.
Haynes Strader: Exactly. But no, it’s been fun and in a way being able to work from home which would not have been the case probably without COVID, has made that a blessing in disguise and in some ways.
Raymond Hawkins: Yeah. Well we’ll tell Charlotte stories years from now about what the year of her birth was like But what a great blessing and congratulations to you guys for bringing her into the world and getting the joy of parenthood. It’s a minor on the opposite end of the spectrum now I’m at a 22 and 20, and boy, it’s been a fun ride. Certainly the best job I ever had is that of dad so excited for you guys. [crosstalk 00:02:01] Good stuff bud.
Raymond Hawkins: Well 2020, so we’re so grateful to get to chat with you again, look back on the year. If I had to summarize the year when we get asked in our leadership meetings about 2020, my description has been, it’s been really busy, lots of activity, but execution has been difficult, actually getting done all kinds of looking, all kinds of meetings, all kinds of talking, all kinds of Zooms, but the ability to execute at our customer level has been really, really tough. So we have an incredible looking pipeline without lots of execution. That’s how it looks to us. Love to hear Haynes as you have a different view of the market and a slightly different customer set. If you had to summarize 2020 in a sentence, how would you summarize it?
Haynes Strader: Yeah, I think I would summarize it as kind of a maybe a backwards L-shaped recovery or J shape in a way. We had a really busy first quarter and then in March obviously busy people were signing deals and then March hits and we saw a big screeching halt as everybody tried to kind of figure out what was happening, but there was lots of activity, lots of questions, lots of fires to put out, lots of things that needed to be addressed. But agreed, there was definitely a slump in transactions. I think we’ve seen that start to really pick back up into what’s looking like a pretty busy fourth quarter, and I think we’re going to be just rocketing into 2021, both from an enterprise standpoint in a hyperscale standpoint. I think the big thing we saw out of this year was the pandemic caused everybody to take a really hard look at their digital strategy and what their digital infrastructure looks like.
Haynes Strader: And I think we saw enterprises in particular really start to take action. And I think it accelerated, whether it was digital transformation or it was simply improving connectivity between locations or creating a remote environment for your workforce, whatever that was, we saw those plans that may have been out for three or four years crunched into three or four months. And I think we’re now starting to see those to go out and execute. So I can tell you from just our team in Dallas, I don’t think we’ve ever been busier and we’re starting to see deals get signed, which is exciting, but a lot of activity going into next year.
Raymond Hawkins: So Haynes, you alluded to the pandemic causing or forcing a lot of organizations to rethink their digital strategy. I heard early in the pandemic sometime about May or June someone say we’ve seen three years of digital transformation in three months. And I think that’s only accelerated in the back half of the year. I think that what we’ve seen is two things. One, that enterprise set of customers going, hey, can we do our business this way? Can we do our business remote? Can we do our business work from home? Can we manage all of our communications online? Can the business actually remain productive and how do we make it remain productive? Number one, and then number two, all of the Cloud guys that we support who provide those services, all seeing their demand go through the roof.
Raymond Hawkins: And I’m not going to have any of the statistics handy at my fingertips, but I know Zoom and Microsoft teams saw exponential growth, record logins by day, record growth, record user numbers, and all of that I think has made the enterprise customer stop and go, okay, we thought about changing, what do we really need to change? And I like your phrase. You said, what we really see rocketing into 2021. We would completely agree. I mean, we have more projects and more requests and more proposals being worked in December than any month I’ve ever seen.
Haynes Strader: Yeah. That’s interesting to hear. And I think there’s a lot of talk around remote working and what that’s going to look like in the future, but I think there’s… What we’re seeing I think is a more strategic play for many of our larger clients that we’ve talked to for a long time about transformation. And a lot of that is financial services, healthcare, and technology companies that have seen a fundamental shift in their business. And so when you look at healthcare, for example, the rise of telemedicine that this has prompted, and the ability for doctors to connect with patients digitally, but also the adoption rate of customers being willing to do that has gone way, way up and just like… Same thing with e-commerce or with food delivery. You’re seeing people that normally wouldn’t have been comfortable on a computer or on their phone engaging with a service provider, now having been forced to do that for a year, feeling much more comfortable doing that. And so we’re seeing this trend of really strategically upgrading technology to improve customer experience and improve interaction within customers. And I think that’s going to drive some really cool long-term developments in this space.
Raymond Hawkins: Yeah. I can tell you Hyanes personal experience I think you nailed it. So for our listeners who don’t know Haynes and I are separated by about a generation and so we have slightly different life experiences and for me so some things that you and my kids probably do all the time, DoorDash or Uber Eats, another funny one is I still take my checks to the bank when someone mails me a check, which I know a lot of people don’t even understand what a check is. When someone mails me a check, I go to the bank. I don’t like… And my children are like, “Dad, why are these checks with a deposit slip sitting on the counter?” And I’m like, “Because I’m going to go to the bank this afternoon.” And they’re like, “Dad, you can do that on your phone.”
Raymond Hawkins: And my daughter was like, “Look dad, here you do, just sign the check, take a picture of it and you can deposit it right from your phone. And it’ll take one minute.” And it’s things like that, that I’m like, “Oh, well that was handy.” Uber Eats has become a normal part of my life. And then Haynes you brought up… I’m sorry, I’m just going to be silly on this one. I couldn’t believe the Uber Eats thing, it’s one of my favorite Cajun places. I’m like, “I bet they’re not on Uber Eats, but I’ll try it.” Ordered it and literally 22 minutes after I ordered it, the guy’s knocking at my door with my favorite Cajun seafood. And I’m like, “Why would I ever leave? This is so handy.” And to your point, because I couldn’t go in the store, but I wanted to support them, I went and downloaded the app and tried it for the first time and so I’m a personal example of the adoption you’re talking about. And then I got one more.
Raymond Hawkins: I mean, I don’t know about you Haynes, but I don’t know if you’ve done much telemedicine with Charlotte being born this year. But holy cow, I had telemedicine visits this year. It is the greatest thing. I get a text from the nurse that says the doctor will be with you in five minutes, please get on and let’s do your pre-check stuff. I don’t have to drive anywhere. I don’t have to sit in the waiting room reading Southern Living. I don’t have to wait an hour for the doctor to get caught back up. They schedule me a slot, they text me five minutes before, the nurse asks me a handful of questions and boom, the doctor’s right there.
Raymond Hawkins: Telemedicine for me is… I mean, I know there’s things… If you break your leg, you’re going to have to go physically see the doctor, but man, that has been an incredible change. And I agree with you, what it’s going to do to the backend services is truly transformational. So I laugh at the list you made, all three of those impacted me personally, banking, food delivery, telemedicine are all things that impacted me in the last year where I wouldn’t have done it otherwise Haynes. I wouldn’t have made the deposits differently, ordered the food differently, and to your point, I just wouldn’t even think about my doctor would call me on my phone.
Haynes Strader: No, that’s exactly right. And I think that if you take it a step further, so it’s easy to understand. You’re interacting with your [inaudible 00:10:12] and you’re interacting with the customer, but who else does that impact? And when you think about it from a technological standpoint, when you make the order on Uber Eats that goes to a restaurant, the restaurant may or may not have great technology to not only receive the order from Uber Eats and all that, but then to actually process it and based on the volume of what they’re processing and you’ve seen companies like Chick-fil-A and McDonald’s really aggressively roll out technology infrastructure to allow them to be super efficient at doing these takeout orders. And that’s why when you pop on, there’s a handful of restaurants every time that are always 10 or 20 minutes away. And it’s because they can handle massive amounts of volume. And I think we’re just, again we’re going to see that continue to grow. We have a food facilities group at CBRE, and they’ve never been busier because they’re out trying to find non-restaurant space for food preparation for a lot of these delivery apps. [crosstalk 00:11:06]
Raymond Hawkins: Wow, so it’s just a place to prepare without walking and without tables. Interesting.
Haynes Strader: Exactly. So it’s just the whole concept, it changes, it goes all the way down the business chain and I think you’ll see restaurants come up with more technological, innovative solutions. And again, all of this relates back to if you’re a restaurant, most of that’s probably going into the public Cloud somehow but again, that’s driving hyperscale demand and just every aspect of those things has a trickle-down effect that impacts other businesses, and all of that supports the story that we’re going to see greater consumption of data, greater creation of data, and we’re going to need more places to process it. So I think you nailed it on just COVID definitely ramped things up from a technological adoption standpoint, but I think as always technology is growing exponentially year over year, the amount of data that we’re creating is growing exponentially year over year.
Haynes Strader: And I think we’re starting to see that, and we can talk a little bit market to market if you want, about where we’re seeing that specifically now, but it’s been a pretty cool instance in our business. It’s been obviously a very challenging year for a lot of people. And I think that ultimately, hopefully people are better served by a community that understands everybody better. We’ve all been through this shared experience. I’ve had to do some flying, and I’ve never had a more pleasant experience from a customer service standpoint in my life traveling lately. And people are appreciative spending dollars at the hotel or on the plane or whatever it is and I hope that we can hang onto a little bit of that as we get back to normal for the next 12 to 18 months.
Raymond Hawkins: Well Haynes, you raised a couple of really important things there, shared experience produces connection and produces bonds, but shared suffering I think produces real deep connection and love. And I think that the world has shared in this suffering this year, I think is virtually universal. And I think produces in all of us reminding us what’s important and what’s true and what’s valuable in life and hope that we come out a better society on the other end of this, that is for sure. I definitely want to do some market level conversation Haynes, I think that will be great. Can I ask a couple more real estate specific because I think your position is unique. Love the sort of the overview about how we personally have experienced and seeing the way technology is changing and what it’s doing to the back end. I couldn’t agree more with your statement, too. The pace at which the world is adding ones and zeros, the world is adding data is only accelerating and the way we do it and the pace at which we do it is accelerating, which ultimately for you and I, as the guys who build and represent warehouses for data, it’s good for us.
Raymond Hawkins: So completely 100% agree with that thesis, but I’d love if you’re willing to take a couple of minutes. You mentioned the food service part of the business, it’d be interesting to get your take. So I went and stayed… Haynes and I are both recording here from Dallas, Texas. that’s where we both live. I went and stayed in downtown Dallas this past weekend. A friend of mine had built a new hotel and wanted to go check out the new hotel and just spending two days downtown and walking around and seeing it, I couldn’t help but think about what’s the commercial real estate market. And I know you’re in the data center side of the business, but I do want to get your thoughts on how do you see, you and I think about this from a digital transformation and warehouse for ones and zeros and data centers and key data center markets. That’s how you and I think about this, but from a CBRE lens, what do you think of the commercial real estate business? How is this going to be transformed by COVID?
Haynes Strader: Yeah, so I can’t answer that question from an official CB standpoint, but [crosstalk 00:14:52] what I can tell you just as a professional in this space is the office realm is going to be impacted. Not because people aren’t going to use office space anymore. I think there is still a very strong, perhaps even a stronger desire for many functions to be in the office. And I think a lot of people work from home has been nice for whatever reason, but being in a place where you can focus on work, where you’re surrounded by colleagues having that comradery, but also having a place where you can have all the resources that you need to function,I think that’s going to continue for a lot of roles. I do think there are certain roles where work from home has been really pleasant and having that option has been a really nice life change.
Haynes Strader: And I think companies will see that and many companies will provide the option which will attract talent. With that said, you go to downtown Dallas, there’s a lot of big leases in a lot of those big tall towers with limited parking where you’ve got a lot of people commuting in. And I think the renewal scheme over the next five years is going to cause some heartburn for a lot of these tenants that have maybe they’re in a 100,000 feet and they’ve realized, we really only need 60,000 because we’re going to allow remote working or whatever, or we want to reconfigure our space. So it’s more bring your own device. It’s more workplace 360, which is something CB has been doing at our own offices around the country for a long time to provide more flexibility for employees.
Haynes Strader: And so I do think that’s going to cause there to be some big chunks of vacancy for a while. Currently, there’s as much space for sublease in Dallas, there is office space for lease. And so that’s a concerning trend. I think it’s going to take some time to recover from that. I think from Texas’s perspective, we’re actually fairly insulate. We’re going to be fairly insulated because I think the amount of migration that we’re going to experience from companies coming from coastal cities into Texas is going to be dramatic. And we’ve already seen some of that, but I think it’s just getting started.
Raymond Hawkins: It’s accelerating isn’t it, Haynes?
Haynes Strader: That’s right. And so the availability of nice office space that’s sitting there today and frankly is very affordable relative to where a lot of these companies are coming from, made it get back a little faster in Dallas, and Austin, and Houston, San Antonio than what we’re going to see in other markets. But I do think we’re in some markets it’s going to be a real challenge. And I think it’s going to take awhile. Fortunately for CBRE, we’re really diversified company. We’ve got a great space and data centers obviously. But if you look at our industrial business, it will be the engine that drives our company in a lot of ways this year. And the industrial business is on fire. I mean, just e-commerce has driven, in a good way. e-commerce has just driven tremendous demand in Dallas, we’re seeing double digit industrial rents in some parts of the city. We’re seeing double digit industrial rents in New Jersey and New York and around the country and key markets. And that’s a huge shift from over five years ago and I think that’s only going to continue for a lot of the technological reasons that we just talked about. I mean, the ability to optimize supply chain and deliver things remotely without having to have a showcase space or a retail space where people are coming in and people can now be comfortable ordering things online, that trend is only going to continue.
Haynes Strader: And then when it comes to retail, I don’t know that I can speak with a lot of intelligence around what’s going to happen to malls and big box retail. But what I can tell you, and this is really just from personal experience is we over Thanksgiving, we went to Topgolf and I was stunned by how busy it was and I had a great time and all that. But the reality is people want to get out and do stuff. People want to get out. They want to go eat. Yes, they can order food at their house, but people like going to restaurants, they like going to retail so I think experiential retail will rebound. I think the lockdowns and the restrictions on retail has been devastating for a lot of small businesses.
Haynes Strader: But I think there’s a lot of appetite to invest in that space when things normalize and while it’s going to be really sad to see some staple restaurants go, I heard a 21 Club in New York is gone recently, which just breaks my heart because that’s a special place to me that I had a lot of good memories and so stuff like that is going to be rough. But the reality is that opens up some real estate that hasn’t been available for 60 years for some new concept. And so I think ultimately retail will rebound, but again, it’s going to look different. And I don’t think you’re going to see the amount of big box type things, but that’s been coming for a while.
Haynes Strader: So I think in a way, this accelerated that transformation in retail as well because businesses either could make it or they couldn’t. So we’ll see how all that pans out. But what I would say is overall, I think the real estate industry is going to be okay. But we’re going to have some challenges with retail and office for some time ahead of us. But you look at life sciences and medical space booming right now. You look at the hotel business, while it’s been definitely challenged during COVID, we’re starting to see signs of life end of this year and into 2021, which is great. And hopefully there’s some recovery there. Unfortunately, there’s been a lot of consolidation in the hotel space so there’s some financial structure there that they can survive this thing.
Haynes Strader: Overall, it will be okay. It’s just going to take people getting out of their houses and getting back to some form of life similar to what it was like before COVID. But I do think it’s going to look very different. You think about, as it relates to hotels and then you think about business travel and how much companies are willing to spend on business travel. And I’ve seen reports anywhere from 30% to 60% cuts to business travel. Well, there’s plenty of markets where that’s going to have a huge impact on hotels on retail, on transportation, all that kind of stuff. And so it’ll be really interesting to see what that does. And when you think about airlines and all of that, and business travel really subsidizes a lot of leisure travel because business travel makes the airline profitable to go to as many places as it flies.
Haynes Strader: And so if they’re not seeing that, do we see it cut down in routes and availabilities and what does that do to markets. And so I think this is going to have a longer tail on it than… A year from now it’s not going to be right back to where it was. And so I think there’s going to be some serious impacts to different aspects of the real estate business, but at the same time, I think the hope is we’re going to see some growth. And you look at technology companies that are growing. They’re not slowing down on office, you know what I mean, they’re still taking down office, planning new headquarters, all that kind of stuff. And we’re seeing tons of new technology companies popping out of the grass because of COVID and the opportunity it’s creating for technology companies to solve problems. So I think we’ll continue to see new opportunities and new growth that are going to look different, but it’s kind of all across the board. I think I feel very fortunate to be in the data center space through this because I know it’s been tough in other sectors.
Raymond Hawkins: Yeah, we share your sentiment and I hate that the kind of problem the world has faced with this pandemic has led to our business doing well, while other businesses have been destroyed, understand that we’re blessed and fortunate and feel terrible for those folks whose business has been hurt. But I think if I could summarize your thoughts and I think this is what I hear you saying is the world is going to change. The real estate market is going to change, but it’s not going away and completely agree. The entrepreneurial spirit, people wanting to be social, people wanting to connect, how we do things is going to fundamentally change, including how we go to work, but we’re not going to stop going to work. And I mean, by going, I literally mean going. I think you’re right. The functions that go in and the frequency with which you go in and I think all of that is going to transform, but the reality is we’re going to settle into, as much as I’m not crazy about the term, we are going to settle into what a new normal looks like, what does the world look like?
Raymond Hawkins: I think the flexibility of people coming in five days a week and commuting and all of that, I think all of that is companies, eyes and perception and vision have been opened and transformed and changed based on this event. And the way things look are going to be different, but there’s going to be real estate. There’s going to be offices. There’s going to be industrial to your point. The idea you know, I loved your reference to the food services group. We still got to make… people are going to eat. It’s just, do we do it sitting in a restaurant or do we do it in a industrial or commercial kitchen that does delivery. We’re all going to continue to buy clothes, eat, and go to work. It’s just going to look different in the future. And I agree with you too, this isn’t going to be transformed by June of 2021.
Raymond Hawkins: This is a multi-year shift in the way things look. And you come back up to pre the concept of the mall. People went shopping and nobody knew what a mall was. And then malls came along and the sort of downtown areas got thinned out and moved to the suburbs. These transformations happen, but it’s over years. And thist the impetus here was quick. And I think it will be many many years as we transform. And I also liked your Topgolf reference. People want to be around other people. Having food brought to your house is great, but it’s different than being in an atmosphere and hearing live music and seeing your friends and getting dressed up and all of those things that are part of just being social beings, which we all are so agree with that.
Raymond Hawkins: Well Haynes, this has been good as we’ve talked about the bigger picture. If you’re willing, we’d love to hear a little bit market driven around North America places, things that you see, trends that you see, markets that you think are transitioning to really heating up, I liked your reference to rocket ship in 2021. We completely agree with that assessment. And if you’d be willing to share with us what you see at a market level or an activity level, or maybe a little bit of what 2020 looked like from an absorption perspective and what you are excited about in 2021 would be great.
Haynes Strader: Yeah, absolutely happy to do that. And we have not collected all of the Q4 data yet, so I’ll give you what I’ve got, but note that still changes and updates to come. So we’ll just touch on when we started in Silicon Valley, it’s been a pretty crazy year. Vacancy is sub 5% in Silicon Valley. There’s very little space available, less than 20 megawatts available. I think right now, I think there’s about 11 megawatts of vacant capacity. And there’s been approximately 23 megawatts of absorption a year today, and that’s not including the fourth quarter, but if you absorbed everything, you wouldn’t be beyond 40 megawatts of absorption. So my gut is that’ll end up around 30 megs of absorption in that market just based on a capacity constraint, but yeah, tons of product under construction.
Haynes Strader: And when you look at the Silicon Valley market, you’ve got 25 megs under construction right now, we’ve got another 80 planned that will probably start to break ground at 21 and 22. But just the timeline to build new product in Santa Clara and that market is really long. And so I think Santa Clara continues to be a very healthy market with premium rates because of the limited supply, you get a premium for the difficulty of developing in that market, but it continues to be an important market I think despite high power rates and seismic risks and all that kind of stuff the reality is tech companies like having some of their compute near where their people are, and that continues to be an important factor in that market which I think we’ll see continuing. If you go up where we’ve seen a lot of activity is really in Vegas and Reno, and we don’t have down to the minute stats in those markets just because they’re dominated by Switch.
Haynes Strader: And we don’t have as much public information from Switch as far as performance, but reality is Switch is building their newest nap right now. They’ve filled up most of SuperNAP 9 and are under construction at SuperNap 10, which is another 40 megawatts. So I think we anticipate that market is doing somewhere between 25 to 30 megawatts a year. And then Reno’s probably doing about the same, which is also Switch and they’re already building out their phase three there. So lots going on in that market and a lot of that activity is coming I think out of demand that has been kind of stuffed up in Santa Clara just because there’s not enough supply, so continue to see activity there. And I think we will continue to see that market grow.
Haynes Strader: If you kinda of just keep going South into Phoenix, we really liked the Phoenix data center market. It has a lot of the right fundamentals as far as availability of power, ease of working with the municipality, good at tax incentives in that area. And so overall they had over 20 megawatts, they’ve had I think 25 megawatts of absorption year to date, again, not going into the fourth quarter. But I think it’s 25.5 megawatts from reading my notes right here. And there’s 28 megawatts under construction right now. We saw Iron Mountain secure, a substantial lease with one of the major hyperscalers. And we also saw one of the private developers aligned continue to get a nice enterprise deal at their site. So it’s a busy market. There’s a lot of competition, obviously Compass and Stream are building big sites out in Goodier where some of the hyperscalers are also developing their own space.
Haynes Strader: And so I anticipate that we’re going to see some exciting activity in ’21 in Phoenix. We are aware of a number of large deals circling that market. And many of them have location requirements where they may have one or two… Sorry, two or more sites that have to be a certain distance apart. And so we really like… There’s a great cluster right by the airport. There’s another cluster up in near closer to Scottsdale. And then there’s this kind of new cluster in Goodier that I think is going to drive some cool activity in that market in ’21. As you kind of had we’ll pause in Denver really quickly, and then head back down to to Dallas. The Denver market’s really interesting because it’s one of the best connected markets in the country from a fiber standpoint.
Haynes Strader: And you have a lot of retail colo providers in that market. Flux Central has a very strong presence there, Zayo, CoreSite, Equinix, Cyxtera, EdgeConneX, there’s a lot of providers in that market, but they’re mostly [inaudible 00:30:15] they’re mostly smaller buildings. They’re not building kind of these large hyperscale facilities. And we’ve seen some large deals get done there. Iron Mountain secured a large government contract there. Flux Central recently did a large hyperscale deal. So there is activity in that market and frankly, the supply is limited. There are not… If you have a one megawatt deal there are not five options for you that are available today. With some construction lead time, there is opportunity there. But I think we view Denver as a really good growth market in the longterm. It’s just absorption year over year in that market is usually three to seven megawatts. I think it’ll be closer to seven this year and maybe even a little up higher than that. But good activity, but definitely a secondary market.
Haynes Strader: Jumping down to Dallas. It has been a long year in Dallas. We had a really good first quarter and pretty slow second quarter. We’ve had a very busy third and fourth quarter. So the market overall has had about 30 megawatts a year today. And I think we’ll probably add three or four more to that number by the end of the year, once we’ve done the final count, but there are so many providers, there’s 24 co-location providers in the Dallas market.
Raymond Hawkins: How many did you say?
Haynes Strader: 24
Raymond Hawkins: 24, wow.[crosstalk 00:31:34]
Haynes Strader: It’s a long list. And that’s frankly probably not including a couple that we don’t use hyper-competitive, but I can’t remember the number of facilities, but it’s more than 60 colo data center facilities. And within that, there’s 15 that can do a one megawatt deal today. And so when a deal hits the market, it’s just really competitive. And the challenge that we’ve seen from landlords is they don’t feel like there’s great market activity. And even when there is, it’s because there’s just too many competitors to seal every deal. And we see a lot of deals get done with the larger REITs with existing customers out of other markets, and it doesn’t go to a full process and all that. So the great thing about Dallas is if you’re a tenant, there literally is not a better market in the history of the colo business than Dallas to go lease space right now, because power is as cheap as it’s ever been. Colo rates are as cheap as it’s ever been, and there’s lots of choices.
Haynes Strader: And so land on the other hand is getting pretty scarce, but we’ve seen a lot of activity. Digital Realty has been very busy. Cyrus once had a few big wins this year. Equinix has knocked it out of the park with their addition at 1990 North Stemmons the new building next to the Infomart has been just a big success for them. And then lots of new product coming out of the ground. Obviously the campus up in Allen is fully accommodated and you guys have gone down South with your new building and Google has publicly been there in Midlothian, they own some land in Red Oak. And we’ve seen some other users looking in the South. So I anticipate you guys will find success there, but the Dallas market is a unique market relative to pretty much everywhere else in the country.
Haynes Strader: I’ll flip down, I’ll do Atlanta and then we can go into Northern Virginia real quick. So Atlanta I’ve actually been kind of bearish on Atlanta, just because it hasn’t had all this historic absorption to prove up the amount of development there. There’s a ton of construction going on. There’s a lot of new providers in that market and vacancy got pretty high. This year it was at 20 megs in a 150 megawatt market, that’s a almost 15% vacancy, but and again, and there’s building 28 megs. So that’s a lot of construction, but year to date we’ve seen in Atlanta really good leasing activity. So they’ve had about 15 megawatts of absorption year to date. And I think we’ll see probably another four or five in the fourth quarter here, which isn’t quite keeping pace with the supply, but it’s not out of control.
Haynes Strader: So I think Atlanta is going to continue to be a really good market. I think the state of Georgia passing the tax incentives that they did attracted obviously growth from Facebook and Google and others. But I think we’ll see other groups really taking advantage of that because you can, as a tenant take advantage of that in the Georgia market which is really attractive. So I’ll go to Northern Virginia last and we can stop there, but NoVa is just remains a global market within itself and it’s just wild what’s going on there. So there will be about 200 megawatts of absorption in 2020 which is a big number. And I believe the number is we’re over 140 megawatts of pre-leasing for 2021. So that’s space that’s already been allocated that’s currently under construction.
Haynes Strader: That’s just unprecedented, well, you kind of hear the numbers from these other markets. It’s nuts. And NoVa had about 250 megs of absorption in ’19, it’s a point of comparison, but the reality is land is getting really tight, power is getting really tight, and for the Ashburn [inaudible 00:35:28] area, very limited number of opportunities will continue to grow from the data center perspective. But there are a number of users there. We’ve seen a lot pushed out to Manassas and Reston. Obviously campus has a campus. Is that name Manassas proper?
Raymond Hawkins: Leesburg, it’s on the other direction. Yeah, yeah.
Haynes Strader: So just North of Ashburn. So lots of… I think we’re going to continue to see hyperscale is the dominant player here. We do a lot of financial services business in this market. There’s obviously a lot of government and federal business in this market. And I think we’re going to continue to see a lot of that roll out. One other thing I just comment on is and I can’t say too much, but there are a number of big federal contracts that are out in the market today. And I think when you look at the JEDI program, which has obviously been very publicly-
Raymond Hawkins: lots of publicity, yeah.
Haynes Strader: [crosstalk 00:36:21] very publicly talked about. The scale of that program, wherever it ends up going, hyperscale and all that. I know Microsoft has won big chunk of it, but however that gets deployed, it’s hundreds of megawatts over the next several years. That can transform a market really, really quickly. So I think we’re going to see the impact of that start to take place in ’21, but we probably will see more clearly where that all lays out in ’22 and ’23 moving forward. But there’s going to be deals like that, that I think are going to really go into a market like Salt Lake or Kansas City or something like that, where it would just completely transform that market. I think there’s a lot of exciting activity yet to happen. And that’s just what we know about and not really incorporating new technology and 5G and all the crazy stuff that’s in development right now.
Raymond Hawkins: Yeah. That is pretty amazing. Haynes, when you think about it is we spent 40 minutes talking about the data center business, and we didn’t say the word 5G until we were 40 minutes into it. It’s coming and it’s certainly you got the devices and the commercial and the networks being built now. But I know it was the first thing I think on everyone’s lips about a year ago, and what the pandemic has done to change the way people operate has taken center stage. But I agree with you. 5G’s comment and your comment about the government contracts… I completely agree that there is so much activity at the federal level there in NoVa, which to me is a little bit… On the one hand I get it because DC, but at the same time, I start to think from a global communications and internet security standpoint, at some point so much traffic and so much information is so much of what the world depends on from a technology standpoint. Being in one place worries me a little. I know on this podcast and you and I can’t do anything about it, but it almost, to me thinking back to 9/11 and the symbolism of attacking the Globe’s financial center, I think there’s potential for that area to just be too attractive a target for a terrorist attack.
Raymond Hawkins: There’s so much information and so much data and so much transport and so much commerce that goes through there. It’s not going to slow down to your point, but just to me, it makes me think the diversity on the East coast would be a good thing, which makes me think of Atlanta or Columbus, even though I know Columbus is not a coastal city, but just ways to diversify some of that demand because you’re right. That market is just unbelievable year after year after year.
Haynes Strader: Yeah. But I think if you think about it in that regard globally, the other major connection markets, it’s a single city in other countries. It’s Singapore, it’s Hong Kong, it’s London, it’s not North America. We’re pretty spread out relative to other countries just because [crosstalk 00:39:12] of the country.
Raymond Hawkins: That’s true. That’s true, yeah. That’s fair. Absolutely correct. Well, can I ask about one city you didn’t mention just because I’d love to hear your thoughts.
Haynes Strader: Sure.
Raymond Hawkins: Chicago, just thoughts around Chicago, love to hear your thoughts there.
Haynes Strader: Yeah, so Chicago’s had a big year, a particular hyperscaler has taken down I think now over 40 megawatts of space in that market in the last 18 months. There’s been good enterprise activity as well, but we’ve seen Elk Grove Village just really on fire as far as stack infrastructure getting their facility leased up and now building the next phase stream, get their first facility that they’ve built in that market leased up, building their next phase. Digital has done really well. Their Franklin Park campus, the Cyrus one is doing well and their Aurora campus. And then you’ve got obviously very little vacancy at 350 East Cermak, I think server farmers had even a couple of good transactions this year. So, and then QTS also I think has grown at a good pace this year. Chicago, it’s kind of, they’ve had years where there’s just not been much activity. But I think for overall, depending on how you track it, if you don’t include powered shell, the absorption numbers are a little bit lower. You’re around 15 megawatts of True Turnkey, but if you include PowerShell, that number gets up to 30, 40 megawatts pretty quickly. So it just depends how you look at it. But I think Chicago continues to be a really critical market and the Illinois tax incentives that were passed, I think will be beneficial to Chicago in the long run.
Raymond Hawkins: Well, I appreciate that perspective. Yeah, it has been a busy busy year up there and wanted to hear if you guys had seen the same thing. So we’re not in the market, but certainly connected and have friends in that space. And I’ve heard it’s been a heck of a year up there.
Haynes Strader: Yeah, for sure, for sure. We’re seeing some diversity in the larger hyperscalers looking at that market, for sure.
Raymond Hawkins: Yeah. Yeah. Well, Haynes, that is a really, really, really good a rundown of the markets. I appreciate you having the homework handy at your fingertips and being willing to share with us CBRE’s perspective on North America bringing it full circle. Enjoy your first Christmas with Charlotte.
Haynes Strader: Thank you.
Raymond Hawkins: What an exciting time, grateful to hear that she’s sleeping through the night, another huge bonus. And we’ve been picked up a few times by some of the new services and gotten up close to 5,000 listeners. So we’ll look forward to hearing from them here in the new year and excited about 2021, and really really grateful Haynes to have you join us. Hope you and your family have a great holiday season. And we look forward to working with you in the market in 2021, man. Thanks so much for joining me here.
Haynes Strader: Thank you Raymond, happy holidays. Thanks for having me. Appreciate it.
Raymond Hawkins: All right [inaudible 00:42:02] Thanks so much. Thank you for listening to another edition ofNot Your Father’s Data Center. We hope that you and yours have a wonderful holiday season. If you’d like to reach us here, feel free to email me rhawkins. That’s rhawkins@compassdatacenters.com. We’d love to hear from you ideas and suggestions. This is our last recording in 2020, and we’d love to hear things you’d like to hear about in 2021. We look forward to hearing from you. You can also reach out to us on Twitter or on our website, but love to hear your feedback and love to talk with all of you again in 2021, have a great year.
