Toronto Is Officially a Big Deal In The Data Centre World

April 23, 2021 3 Minute Read

Toronto is officially a big deal in the data centre world

Demand from cloud service providers and large tech companies led to the second-most data centre leasing in North America happening in Toronto, according to a recent report from CBRE.

Toronto saw 38.1 megawatts (MW) of data centre absorption in 2020, bested only by Northern Virginia, which had 217.2 MW of absorption last year. Montreal was ninth on the list, with 11.0 MW of net data centre absorption in 2020.

One of the fastest-growing real estate sectors, data centres are in high demand as businesses reconfigure digital infrastructure to improve remote work capabilities, and tech giants and cloud service providers race to meet consumer and corporate demand.

Toronto, by virtue of its size and status as a home to large enterprise companies, is seeing unprecedented data centre demand, and there are vast amounts of capital ready to be deployed. “There has been this explosion of demand in recent years,” says CBRE Vice President Scott Harper, who heads up the Toronto data centres business.

While Harper says the GTA is projected to see upwards of 50 MW of annual data centre absorption in the coming years, there are big hurdles standing in the way of that growth. For all the talk about fibre optics and megawatts, the success of the Toronto data centres market hinges on finding dirt to develop.

That’s not as easy as it sounds. As Harper points out, the GTA industrial market has been “gobbling up land.” Considering that a new data centre development might require up to 20 acres, finding an adequate site in the GTA is a near impossibility.

Industrial land in the region is worth around $3.5 million an acre, according to Harper, and while real estate might represent 10 per cent of a data centre’s total development cost, it does make it costly to buy a 20-acre parcel. “Even if you did find a site that large, you'd have to pay $70 million, and then it could be 4 to 5 years before you see any substantial yield from the project. It takes 3 years just to complete a ground up build even if the power is available. That’s why data centres can be so challenging from a greenfield development point of view.”

It’s a different story in Montreal, which has the second most data centre space under development in North America, with 57 MW, more than either Silicon Valley, Washington, DC, or Chicago.

CBRE Senior Vice President David Cervantes, who heads up the Montreal data centre business, notes that there are similar pressures for data centre developers on the island of Montreal. But off island, “you have a lot more options. You could build a new data centre hub in any direction from downtown Montreal. Toronto doesn’t have that same advantage. You can’t just annex Buffalo and go south; plus the population there is so much bigger.”

Toronto requires creative solutions for growing its data centre market. One option Harper has been talking to clients about is buying up an older industrial facility that isn’t being maximized, say, a 180,000 sq. ft. building, and tearing it down and putting up a shiny new 300,000 sq. ft. data centre in its place. “It’s an upsize situation without having to use more land.”

Another option is to add a data centre to a property that has existing cash flow, such as purchasing an office building on a site that has additional land zoned for data centre development. “It’s all about creativity when you’re coming up with data centre deals these days," says Harper. "If you’re looking for upside, those who can buy deals and land will win.”

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