Latin America’s datacenters: capacity and prices rise, vacancy falls

Latin America’s main datacenter markets ended Q1 with 672MW in capacity availability (inventory), doubling in comparison with the same quarter in 2020, according to a report by real estate services and investment firm CBRE on the global datacenter market.

“The region has experienced significant growth over the past three years, with supply doubling since 1Q20. Brazil has grown the fastest, with inventory up 127% from 2020 to 2022. It is also the largest, with around 67% of the region’s inventory,” the report said.

While inventory grew, average vacancy rate fell, which means sites are increasingly occupied and demanded. The vacancy rate declined to 8.6% in Q1, compared to 12.2% a year ago. The report said the trend was most notable in Santiago, where vacancy fell from 11.7% to 3%. 

“Querétaro is also showing very tight vacancy at 3.1%. Most of the region’s new inventory has been pre-leased to hyperscalers, with persistent high demand,” wrote CBRE.

NET ABSORPTION AND LEASING RATES

Net absorption – the amount of capacity offered that is used – is also high in Latin America, although it cooled off.

“In 1Q23, net absorption declined slightly year-over-year to 62.2MW, though demand across Latin America remained robust. Net absorption in Latin America has more than doubled since 2020, when the market absorbed 61MW, almost 20% of the total inventory.”

Fueled by rising cloud and datacenters demand, colocation rental rates in Latin America are equally soaring.

CBRE also said that prices in Latin America are higher than in North America and Europe, as limited supply, high fees and taxes have an impact. Looking at the main global datacenter hotspots, Santiago and Bogotá rank second and third, respectively, in rental prices, trailing only Singapore. 

Prices also vary dramatically. In Santiago, for example, the monthly pricing range for 250-500kW, excluding electricity costs, is US$180-450 and in Bogotá US$240-380, according to CBRE.

In comparison, in North Virginia, which is deemed the world’s busiest datacenter hub with 2,132MW in inventory, the range is US$100-140 – the second cheapest as per CBRE's measurements.

REGIONAL HIGHLIGHTS AND CHALLENGES

About “70MW is available in core markets (São Paulo, Santiago, Querétaro and Bogotá), which is distributed among legacy and new-build enterprise assets that offer colocation services,” said CBRE. It added, “it can be challenging to meet the demands of organizations that require over 1MW due to some countries’ limited available leasing space.”

São Paulo leads in Latin America with 52.3MW of leasing availability in 1Q23, down from 69MW in 1Q22, according to the report.

CBRE said the metropolitan region “is attracting developer-operators because it’s the largest, most populated and wealthiest market in Brazil, and the largest in Latin America.” It also highlighted its “low latency, excellent connectivity and robust infrastructure for enterprises needing capacity" and a "high concentration of IT services offered in São Paulo, which makes it a suitable location for datacenters.”

The proximity to global companies, the B3 stock market and cable landing stations is also seen as advantageous. 

But São Paulo’s land prices pose a challenge as they are higher while more regional projects emerge and existing players banked land and power for expansion plans.

“Additionally, many properties are unsuitable for datacenter development due to lack of utilities and fiber connectivity, which may further complicate the development process and require careful evaluation for site selection. Finally, providers must contend with complex and time-consuming regulatory and licensing requirements.”

Santiago

Santiago's inventory of 109MW has grown in the last few years as more operators seek to take advantage of the submarine cables connecting the region with North America and future connectivity with the Asia-Pacific.

The report said that retail and telecom datacenters are downtown, while hyperscale and wholesale facilities are in north Santiago.

Opportunities also include the clean energy matrix. South Santiago is seen as having untapped potential for datacenter growth, as inventory remains low.

But “water usage and hazardous waste disposal are specific environmental concerns extending development timelines in the area,” the report said.

Insufficient energy supply in certain areas and the risk of natural disasters such as earthquakes and flooding appear as other hurdles. 

“The site selection process is often lengthy, given the time needed to obtain environmental licenses. Additionally, too little land is approved for development,” said CBRE.

Querétaro

The proximity to Mexico City and the booming Bajío region fuels business growth in Querétaro, according to CBRE, which also lists the presence of 76 industrial parks and many of the country’s largest banks’ datacenters.

The state also serves as a crucial internet backbone that connects Mexico City and the US, and land prices are still competitive compared to other regions. 

“Querétaro has been experiencing significant IT and tech industry growth, driven by a favorable business environment, government support and a skilled workforce. Increasing demand for datacenter services has followed.”

As per challenges, the region’s increasing demand is leading to constraints and delays in electric power delivery.

Furthermore, datacenter providers based in Mexico City are pursuing opportunities in Querétaro, intensifying local competition. Querétaro has only 1.2MW available for lease, according to CBRE.

The report also said that Colombia, notably Bogotá, is attracting more datacenter development due to its economy’s size and interconnectivity location, despite challenges with land availability, lengthy licensing times and growing leasing prices.

“The local datacenter market size is not proportional to the population and size of the economy, creating an investment opportunity,” said the report.

Opportunities and challenges are also listed for Lima and Montevideo.