Mark Obrinsky
According to the National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions, the U.S. apartment industry’s recovery continues briskly.

The Market Tightness Index, which examines vacancies and rents, rose to a record 90 from 78 last quarter. For all indexes, a reading above 50 indicates improving market conditions. Almost four in five respondents (79%) said markets were tighter (lower vacancies and/or higher rents) and — for the first time ever–not a single respondent thought conditions were looser.

“The apartment industry rebounded strongly in 2010 as demand for apartment residences outpaced the sluggish recovery in the job market nationally,” said NMHC Chief Economist Mark Obrinsky. “These results show the apartment industry continues to do well even though the nation’s overall rate of economic growth has slowed. This is driven largely by the increased appeal of renting generally but also by the large number of young people entering the housing market for the first time–and young people are much more likely to rent than buy.”

These strong fundamentals are bringing investors off the sidelines. The Equity Financing Index rose to another record high of 76 from last quarter’s record of 74. A record percentage — 54% — of respondents said they had greater access to equity capital in the past three months. Debt capital was also more available in the last quarter, with an increase in the Debt Financing Index to 69 from 48 in January.

“Investors are well aware of the apartment recovery and are eager to deploy capital in the sector,” noted Doug Bibby, NMHC’s President. “Sales volumes are still rising, which suggests that more investors are willing to ‘pull the trigger’ at current cap rates.”

Key findings include:

The Market Tightness Index rose to a record 90 from 78. Nearly 80% of respondents reported tighter markets; none said markets were looser. This is the fifth straight quarter that the index topped 50, which indicates improving conditions.

The Equity Financing Index rose to a record-high 76 from its previous record of 74. Fifty-four percent indicated that equity financing conditions were better than three months earlier–also a second-straight all-time high. A mere 1% regarded conditions as worse. This is the seventh quarter in a row where more respondents said equity financing conditions were improving.

The Sales Volume Index increased to 65 from 62. This was the seventh consecutive quarter the index has been above 50, indicating improving sales volume. Thirty-seven percent of respondents said sales volume was higher this quarter.

The Debt Financing Index rose to 69 from 48. Just under half of respondents said borrowing conditions were unchanged compared to three months ago. But 44% indicated that conditions had improved and only 7% said conditions had worsened compared with three months ago. Yields on Treasury securities are down by roughly 40 basis points over this time, which likely accounts for the rise in this index.

Jim Dieter
Based on Cushman & Wakefield’s first quarter 2011 statistics for the U.S. industrial market, continued momentum towards recovery is still in play with leasing activity increasing and vacancy continuing to decline. Additionally, new industrial construction remains historically low.

Industrial leasing activity in the U.S. totaled 68.0 million square feet in the first three months of 2011, up 12.5 percent from the 60.4 million square feet leased at this time last year, and the strongest first quarter since 2007, when 79.3 million square feet was leased. The U.S. industrial markets with the largest percentage increases in leasing activity included Long Island, NY (up 172 percent), Suburban Maryland (up 118.8 percent) and Silicon Valley, Calif. (up 65.1 percent).

The overall vacancy rate for the U.S. industrial market declined to 10.2 percent at the end of the first quarter of 2011, a 0.1 percentage point decrease from 10.3 percent at year-end 2010, and down from 10.8 percent at this time last year. Vacancy declined in 22 of the 34 U.S. industrial markets tracked by Cushman & Wakefield quarter-over-quarter, with the Inland Empire, Calif. (declined to 10.2 percent from 11.0 percent), Jacksonville, Fla. (declined to 11.6 percent from 12.2 percent) and Hartford, Conn. (declined to 14.0 percent from 14.7 percent) charting the largest declines.

New construction remained limited, with 3.2 million square feet of new product added to the market so far this year, on par with the 3.2 million square feet delivered in the first quarter of 2010, and the lowest amount of construction completions since Cushman & Wakefield started tracking the U.S. industrial market.

Overall absorption – which can be positive or negative in relation to whether more space is being occupied (positive absorption) or added to the market vacant (negative absorption) – was positive 7.7 million square feet at the end of the first quarter, up from negative 15.8 million square feet at this time last year.

“Leasing activity has returned to levels we haven’t seen since pre-recession,” said Jim Dieter, executive vice president and head of U.S. Industrial Brokerage. “With this strong rebound in demand, coupled with declining supply, the U.S. industrial market is steadily making its way towards recovery.”

According to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, first quarter 2011 commercial and multifamily mortgage originations were 89 percent higher than during the same period last year and 25 percent lower than during the fourth quarter of 2010. The decrease from fourth quarter 2010 reflects the industry’s usual push to finalize deals before the end of the year, and subsequent drop-offs in first quarter numbers.

“The pace of commercial and multifamily mortgage lending continued to increase in the first quarter of this year,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Commercial/multifamily mortgage origination volumes for the first three months of 2011 were the highest of any first quarter since 2002, and were nearly double the volume seen during the first quarter of 2010.”

First Quarter 2011 Originations Increased Eighty-Nine Percent Over First Quarter 2010

The 89 percent overall increase in commercial/multifamily lending activity during the first quarter of 2011 over the same period in 2010 was driven by increases in originations for all property types. When compared to the first quarter of 2010, this included a 465 percent increase in loans for hotel properties, a 194 percent increase in loans for industrial properties, a 104 percent increase in loans for multifamily properties, a 92 percent increase in loans for office properties, a 91 percent increase in loans for health care properties, and a 13 percent increase in loans for retail properties.

Among investor types, first quarter 2011 originations for conduits for CMBS increased 391 percent compared to last year’s first quarter. There was also a 126 percent increase in loans for life insurance companies, a 73 percent increase in loans for commercial bank portfolios, and a 59 percent increase for the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac.

First Quarter 2011 Originations Decreased Twenty-Five Percent From Fourth Quarter 2010

First quarter 2011 commercial/multifamily mortgage originations were 25 percent lower than originations in the fourth quarter of 2010. This includes an 83 percent decrease for health care properties, a 48 percent decrease for retail properties, a 44 percent decrease for hotel properties, a 28 percent decrease for multifamily properties, and a 15 percent decrease for office properties. Originations for industrial properties increased 12 percent.

Among investor types, first quarter 2011 originations for conduits for CMBS decreased 58 percent compared to the fourth quarter of 2010. There was also a 45 percent decrease for GSEs and a 15 percent decrease for life insurance companies. Originations for commercial bank portfolios increased by 21 percent.

According to a new report by Fannie Mae (OTC:FNMA), 2010′s top ten multifamily lender partners produced the highest multifamily loan volumes by contributing at least $870 million each.

“In the face of a challenging market, the DUS lenders have continued to lend, providing liquidity and stability to the multifamily market,” said Ken Bacon, Executive Vice President of Fannie Mae’s Multifamily Mortgage Business. “These results confirm that the multifamily business is well positioned to continue to grow and do well in the future thanks to the hard work and dedication of our DUS lenders.”

Fannie Mae’s Delegated Underwriting and Servicing (“DUS”) program was created 23 years ago and is recognized in the industry as the premier multifamily lending platform in the country. The delegated model, with risk sharing at its core, has served Fannie Mae and the industry well. In fact, the concept of risk retention has recently been proposed as a way to ensure proper underwriting and sustainable lending.

Fannie Mae works with its lender partners to provide multifamily debt solutions for all segments of the multifamily market, including small and large multifamily loans, seasoned pool purchases and structured transactions. Approximately 91 percent of the multifamily units financed by Fannie Mae through its lender network are affordable to America’s working families earning at or below the median income of their communities.

In 2010, Fannie Mae and its lender partners provided $16.9 billion in debt financing for the rental housing market, through approximately 2,300 multifamily mortgage loans for 306,000 rental units across the U.S.

The top ten multifamily loan originators, listed in descending order:

1. Wells Fargo Bank N.A.;

2. DB Mortgage Services, LLC;

3. Walker & Dunlop, LLC;

4. CBRE Multifamily Capital, Inc;

5. PNC Bank, National Associations;

6. Arbor Commercial Funding, LLC;

7. Prudential Multifamily Mortgage, Inc;

8. CW Capital LLC;

9. M&T Realty Capital Corporation;

10. Greystone Servicing Corporation, Inc.

Yas Hotel, Yas Marina
Aldar, one of Abu Dhabi’s top real estate development companies is set to bring Yas Island, Abu Dhabi’s major destination for business and leisure travellers to Arabian Travel Market, the leading travel exhibition for the Middle East region that starts tomorrow in Dubai.

Since November 2009, when it welcomed the public ahead of the first Formula 1â„¢ Etihad Airways Abu Dhabi Grand Prix, Yas Island has evolved into a major business and leisure hub. Located between Abu Dhabi and Dubai, and just 10 minutes from Abu Dhabi International Airport, Yas Island has a wide range of hotels and attractions to cater for all travellers.

The Yas Hotel has developed its reputation as one of the most iconic five star hotels in Abu Dhabi, and has welcomed high-level governmental meetings, awards ceremonies and corporate conferences. The profile of the hotel has blossomed inside and outside the GCC, culminating in the award of the “World’s Best New Hotel” at the World Travel Awards in London in November 2010.

Six other hotels on Yas Island offering 1,800 rooms and conferencing facilities have been developed around a plaza close to the Yas Marina Circuit. The hotels are owned by Aldar and operated by global brands IHG (Crowne Plaza and Staybridge Suites), Rezidor (Radisson Blu and Park Inn) and leading regional operator Rotana (Rotana and Centro).

Last year also saw the launch of a number of new destinations to great acclaim.

Opened in the summer of 2010, Yas Links Golf Course, the first true links in the region, has further strengthened Abu Dhabi’s position as a major golf tourism destination. It was also decorated with the coveted Best Golf Course and Best Club accolades by Middle East Golfer, the region’s leading consumer golf magazine, in its 2010 awards.

Ferrari World Abu Dhabi opened in November 2010, becoming the world’s largest indoor theme park and the first ever Ferrari theme park in the world. The park hosts over more than 20 Ferrari-inspired rides and attractions for the entire family including the world’s fastest roller coaster and the region’s first duelling coaster.

The Yas Yacht Club is now open and has become a vibrant entertainment destination with Cipriani, Stars’n'Bars and Allure nightclub all proving to be a welcome addition to Abu Dhabi’s dining and nightlife options.

Yas Island has also played host to diverse range of international and regional artists such as Eric Clapton, DJ Tiesto, Stevie Wonder, Shakira and Amr Diab during its Show Weekends and a full programme of year-round cultural and sporting events are now in place.

Yas Island
Looking ahead, Yas Island is set to become a major retail destination for the UAE. The largest IKEA store in the MENA region opened in March, and Yas Mall, a super regional Mall is set for completion in Q3 2013. In addition, an exciting new water park concept is also scheduled for completion on Yas Island in 2013.

Mohamed Al Mubarak Deputy Chief Executive Officer and Chief Commercial Officer, Aldar Properties, commented, “It is great to be returning to Arabian Travel Market to showcase the further developments at Yas Island and explore collaboration opportunities with the wider tourism industry. Over the past two years, a range of exciting new attractions have allowed Yas Island to establish itself as a destination catering to a diverse variety of visitors from business travellers to family leisure visitors.”

Yas Island first opened to the public in November 2009 ahead of the inaugural Formula 1 Etihad Airways Abu Dhabi Grand Prix, when Aldar delivered Yas Marina Circuit, seven hotels, the Yas Marina and all related infrastructure. The region’s first links golf course, Yas Links, opened in 2010 as did Ferrari World Abu Dhabi, the world’s largest indoor theme park. The Yas Yacht Club is now open and has become a vibrant destination with Cipriani, Stars’n'Bars and Allure nightclub joining Abu Dhabi’s diverse dining and nightlife options. Yas Gateway Park is also now open and provides parkland for recreation as well as parking for the island’s major events.

The largest IKEA store in the MENA region opened its doors in March 2011 and development continues across Yas Island with Yas Mall, a major retail complex (completion Q3 2013) and Yas Water Park (completion Q1 2013) in progress.

1515 Broadway Exterior
SL Green Realty Corp. (NYSE: SLG) today announced it has acquired SITQ’s entire interest in 1515 Broadway, thereby consolidating full ownership of the building. The transaction values the consolidated interests at $1.21 billion.

1515 Broadway, whose crown is prominently displayed in New York City’s iconic skyline, is a 1.75 million square foot, 54-story office skyscraper situated in the heart of Times Square. The property recently underwent a $40 million strategic repositioning, which included a total lobby redesign featuring 5,000 square feet of custom art glass wrapping the core walls, new entrances, new common corridors and bathrooms. In addition to being home to Viacom International Inc. and its famous MTV Studios, 1515 Broadway features high profile retail tenants, including Aeropostale, Oakley and Billabong.

SL Green President Andrew Mathias stated, “This is another in a line of highly successful joint ventures with SITQ, and we look forward to joining SITQ in making future investments. 1515 Broadway is one of our premier assets, located at the crossroads of the world in Times Square, and we expect to own it for many years to come.”

1515 Broadway Angled Exterior
SL Green Realty Corp. is New York City’s largest office landlord that is a fully integrated real estate investment trust (REIT). Currently SL Green owned interests in 43 Manhattan properties totaling more than 29.7 million square feet.

This included ownership interests in 22.3 million square feet of office buildings, ownership interests in 334,782 square feet of free-standing and condominium retail properties, and debt and preferred equity investments secured by 7.4 million square feet of properties.

In addition to its Manhattan investments, SL Green holds interests in 31 suburban assets totaling 6.8 million square feet in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey, along with six development properties encompassing approximately 1.3 million square feet and three land interests.

Evan Goldman
Encouraged by increased mall pedestrian traffic in the metro Washington, DC market, Federal Realty Investment Trust of Rockville, MD is going ahead with plans to redevelop the Mid-Pike Plaza in Rockville, Montgomery County.

The first phase of the construction is tentatively set for June 2012 at an estimated cost of $225 million, according to Evan Goldman, vice president of Federal Realty.

“There is quite a bit of demand for mixed-use in the D.C. area,” Goldman told Montgomery County Gazette.net. “People want to live near these type of developments and walk to those types of places.”

Bethesda Row
The redevelopment project has been in the works since 2005. At that time, Goldman told Montgomery County officials his company planned to transform Mid-Pike Plaza into a mixed-use development similar to Federal Realty’s Bethesda Row development, according to Montgomery County Gazette.net

Mid-Pike covers 24 of the 430 acres that surround the White Flint Metrorail station, making it twice the size of Bethesda Row, Goldman said.

Mid-Pike was rezoned for mixed use. Federal Realty officials plan to submit a site plan in the next 30 days.

The project would follow the construction of other shopping centers in the region, including Fair Hill Shopping Center in Olney, MD and Clemson Corner Shopping Center in Frederick County.

Clemson Corner aerial
The new developments come as the vacancy rate for retail in the Washington, D.C. region declined to 6.2 percent in the first quarter, according to Encino-CA-based Marcus & Millichap Real Estate Investment Services.

That is down from the national rate of 10.2 percent experienced during the Great Recession. The rate is expected to drop closer to 10 percent by the end of the year, Marcus & Millichap predicts.

Fair Hill, owned by Carl M. Freeman Cos. of Olney, has restaurants including The Greene Turtle and Baskin Robbins and a Harris Teeter grocery store that opened last week.

Clemson Corner, a 380,000-square-foot shopping center in Frederick that recently opened, features a Wegmans grocery, clothing retailer Marshalls and Lowe’s home improvement store. Wegmans plans to open in June. Lowe’s opened two weeks ago.

Fair Hill Shopping Center, Olney, MD
Clemson Corner was developed by Faison Enterprises of Charlotte, N.C., and Atapco Properties of Baltimore.

According to Gazette.net, Faison, which also has offices in Atlanta and Bethesda, secured an initial loan of $6.5 million through PNC Real Estate to acquire the property and fund initial development costs. The full construction loan totaled $29.5 million.

Projects such as Mid-Pike Plaza, Fair Hill and Clemson Corner come when the region’s enclosed malls, such as the Mall in Columbia and Westfield locations in Bethesda, Wheaton and Annapolis, are seeing a recovery in sales as consumers feel more comfortable making purchases post-recession, Gazette.net reports.

Abhishek Kiran Gupta
Based on a new report by global real estate firm Jones Lang LaSalle, Mumbai’s commercial office markets moderated slightly in the first quarter of 2011.

Abhishek Kiran Gupta, Head – Research & REIS of Jones Lang LaSalle India said, “The year 2011 will be a strategic window of opportunity for occupiers and investors, when rents and capital values in most of the micro-markets would be at their cyclical bottom and remain undervalued. Several markets have already shown signs of steady revival in terms of strengthening of demand for office space as well as an increase in capital market transactions. We forecast the absorption of office space across the top seven cities of India to grow nearly 1.8 times from 19.6 million sq ft recorded in 2009 to 35.7 million sq ft in 2011.”

Gupta further commented, “Several markets which were dormant during 2010 with respect to property rates will register an appreciation in valuations. The prime markets of Mumbai, Delhi and Bangalore are ahead in the property cycle in terms of transactional volumes and should be the first to register rental growth in 2011. However, the oversupplied suburban markets might still feel the pressure of inadequate demand levels and will be late to recover. Adequate volumes of office supply will keep hitting the markets every quarter, keeping the segment interesting for occupiers as well as investors.”

Key highlights from Jones Lang LaSalle report include:

Class A Office Markets

Demand

After recording significant leasing in 4Q10, Mumbai city witnessed moderate transaction activity in 1Q11 as the major office occupiers of India Inc awaited the impact of budget on their corporate real estate strategy for the next fiscal year. However, the city’s office market witnessed transactions totaling 827,105 sq ft (76,841 sqm) in 1Q11.

In addition to the banking, financial services and insurance (BFSI) sectors, demand for office space in the prime micro-markets of Mumbai came from the consulting, aviation, IT/ITES and other industries. The IT sector’s recovery from the financial meltdown has shifted activity towards the suburban precincts of the city where significant IT supply is in the pipeline.

Key transactions in Mumbai in 1Q11 include the following:

Viacom leasing 125,000 sq ft (11,163 sqm) in Zion Business Park, SBD North;

Milestone Group purchasing 66,000 sq ft (6,132 sqm) in Patel Corporate Park, SBD North;

TPG Group leasing 12,000 sq ft (1,115 sqm) in Platina, SBD BKC;

Black Gold Holdings purchasing 25,000 sq ft (2,323 sqm) in Lodha Supremus (Worli Naka), SBD Central;

Geoffreys Fund leasing 11,000 sq ft (1,022 sqm) at Maker Maxity, SBD BKC; and Supply

Oberoi Commerz 1
Five buildings in Mumbai’s prime micro-markets completed in 1Q11, adding 795,562 sq ft (73,910 sqm) of office space and bringing total operational stock in Mumbai’s prime micro-markets to 29.4 million sq ft (2.81 million sqm), with an overall vacancy level of 13.2%.

The major completions in Mumbai in 1Q11 included Urmi Estate (lower floors), which has a built-up area of 300,000 sq ft (27,871 sqm), located in Lower Parel; Supreme Chambers, which has a built-up area of 250,000 sq ft (23,226 sqm), located in Andheri (W); and Pranik Chambers, which has a built-up area of 120,000 sq ft (11,148 sqm), located in Andheri (E).

Asset Performance

As seen in 2H10, rental values in the premium micro-markets of the CBD and SBD BKC showed a marginal increase in 1Q11 due to the latent demand for office space in this micro-market. However, recent completions recorded in Mumbai’s SBD have only moderate pre-commitments, keeping rents range bound in select secondary districts of Mumbai.

12-Month Outlook

With rental values showing signs of improvement over the past three quarters, rents are expected to continue to rise in the near term. Improving confidence among office occupiers and investors on the back of India’s economic resurgence is expected to drive transaction volumes in 2011. However, with diverse supply conditions prevailing across different sub-markets in Mumbai, the rises in rentals and capital values are expected to vary according to location.

Mumbai Prime Retail Market

Demand

Mumbai’s retail market continued to grow in terms of leasing and pre-leasing activities in 1Q11. Overall improvements in retail sentiment and better employment scenarios have caused demand for retail space in the city to rise steadily over the past few quarters. Total net absorption of 387,427 sq ft (35,993 sqm) was recorded in 1Q11 compared to 375,461 sq ft (34,882 sqm) in the previous quarter. Similar to 4Q10, the majority of the net absorption in 1Q11 came from the suburban micro-market. Most of the malls that completed in 2009 and 2010, and had higher vacancy rates witnessed leasing in 1Q11, contributing significantly to the net absorption in the quarter.

Major leasing transactions during 1Q11 included the following:

Reliance Hyper Market leasing 78,000 sq ft (7,246 sqm) in Market City Mall, Kurla, Suburbs;

KidZania leasing 75,000 sq ft (6,968 sqm) in R-City Mall Phase-II, Ghatkopar, Suburbs; and

Marks & Spencer leasing 22,000 sq ft (2,044 sqm) in Viva City Mall, Thane, Suburbs; Supply

Raheja Titanium
In 1Q11, the Dattani Square mall commenced operations in the Suburban micro-market of Mumbai City, adding 700,000 sq ft (65,032 sqm) and bringing the total operational mall space of the city to 14.33 million sq ft. With moderate net absorption and no new completions, the Prime South and Prime North micro-markets witnessed a marginal reduction in vacancy rates in 1Q11. Vacancy rates in the Prime South and Prime North micro-markets fell to 6.5% and 17.0%, respectively, in 1Q11, down from 6.6% and 17.3%, respectively, in the previous quarter. Due to the additional 700,000 sq ft of mall space, the vacancy rate in the Suburbs micro-market was 28.0% in 1Q11, up from 26.8% in 4Q10.

Asset Performance

Rental values across the micro-markets of Mumbai remained stable in 1Q11. However, capital values in the Prime South micro-market grew marginally during the quarter in line with rising interest in prime retail properties in the city. The Prime South and Prime North micro-markets recorded an average rent of INR 225 and INR 135 per sq ft per month, respectively; the Suburbs micro-market saw an average rent of INR 85 per sq ft per month in 1Q11.

12-Month Outlook

Mumbai is expected to witness about 4.8 million sq ft (448,258 sqm) of new operational mall space by end-2011 and 6.9 million sq ft (643, 354 sqm) by 2013. Major completions are expected to be Infiniti Mall at Malad, Suburbs; Viva City Mall at Thane, Suburbs; R-City Mall Phase II at Ghatkopar, Suburbs; and Magnet Mall at Bhandup, Suburbs.

With the limited future supply in the Prime micro-markets, rents are expected to rise in the near term. The Suburban micro-market is also expected to see an appreciation in rental values over the coming quarters limited to certain quality assets.

Construction of new shopping centers is back in vogue. WS Development of Chestnut Hill, MA and New York City-based Olympic Realty & Development Corp. announced they have closed on a multi-million-dollar deal for 42 acres at 5242 West Ridge Road (Route 20) in Millcreek, PA.

Bentonville, AR-based Walmart participated in the deal.

The land is the future home of Millcreek Town Center, a planned, multi-million-dllar, 350,000 square-foot open-air shopping center, which will include a new Walmart and about 160,000 square feet of additional retail and restaurant space.

“We are thrilled to be under way with the development and thankful for the welcoming reception we have received from Millcreek Township,” said Louis Masiello, Vice President of Development, WS Development.

“We are also pleased to be working with Walmart on this project. They are a fantastic anchor tenant for our shopping center, and a true engine for economic growth and job creation for the entire region.”

“Millcreek Town Center is going to be one of the most exciting, new regional shopping centers to be built in the US this year,” said David J. Schwartz, President, Olympic Realty & Development Corporation.

“As part of the Greater Erie trade area, Millcreek Town Center is situated to serve Pennsylvania’s fourth largest trade area with a population of more than 300,000 people.”

Construction of the 190,000 square foot Walmart is expected to begin this year.

Leasing is under way on the 160,000 square feet of additional retail space, which includes space allocations for junior department stores, small shops, and freestanding outparcels. WS Development is the leasing agent for the project.

WS Development says it is one of the largest privately owned retail development firms in the country.

The company states WS Development has been a leader in the acquisition, development, management and redevelopment of retail and mixed-use properties. Its diverse portfolio consists of more than 80 properties totaling over 17 million square feet of retail space.

Olympic Realty & Development Corp. is a developer, owner, and operator of high quality retail shopping centers.

With over 25 years in the retail development business, the company says it has developed millions of square feet of new retail space throughout the northeastern United States.

Rick Einhorn
It was bound to happen — a faster, cheaper way to build $100 million data centers. It’s happening right now.

Hewlett-Packard Co., Dell Inc. Sun Microsystems Inc., Google Inc., eBay Inc. and Microsoft Corp. are among the first to be planning modular data centers built in factories and shipped to an on-site location, instead of constructing the centers on site, according to The Wall Street Journal.

The estimated construction time saved: From two years for on-site construction to 16 weeks for pre-fabricated modular properties.

Why is it happening? The vast warehouses of computers that power the Internet need more space and they need it now. This is a growing market known as cloud computing services

“Those companies have recently moved to building data centers in prefabricated modules much the way a real-estate developer might a suburban home,” according to the WSJ.

H-P last year shifted to the modular approach, rather than custom designs used in the past, when it started to sell prefab data centers to its customers.

EBay Inc. made the shift in December when it announced the winner of a contract to build a large modular data center in Phoenix.

Dell recently announced plans to build 10 new data centers around the world, which it said it will build using modules.

Building data centers in this fashion “will have a huge impact going forward,” said Rick Einhorn, director of world-wide critical facilities service at H-P, told the WSJ.

He anticipates that 50% of all new data centers will be built modularly, rather than custom designs, by 2013.

The shift comes as companies race to keep pace with demand for data centers.

According to the WSJ, the amount of commercial data-center capacity becoming available, which grew 5% in 2010, is projected to hit double-digit growth rates, up to 11% growth in 2014, according to New York City-based Tier 1 Research.

Meanwhile, Tier 1 said demand grew 13% in 2010 and is expected to keep growing above that rate into the future.

George Slessman
“The need now [for new centers] is outstripping the ability of custom to meet it,” said George Slessman, chief executive of i/o Data Centers LLC, a Phoenix-based builder of data centers.

Cloud-computing, a catchall term for data and programs accessed over the Internet is a large driver of that increase. The market for cloud services is expected to reach $102.1 billion in 2012, up from $68.3 billion in 2010, according to research firm Gartner Inc. of Stamford, CT.

Cloud computing services include streaming videos, online email programs, and corporate applications that are hosted on outside computers.

Companies like i/o used to build each of their data centers differently and on site, but i/o is now able to build 800 modules a year in its Phoenix factory. I/o will soon open its first data center built with the modular approach in Edison, N.J.

Slessman of Data Centers LLC told the WSJ it will be six weeks from the time i/o took possession of the building to the time the first customer is activated in the 831,000-square-foot center.