Developer Completes $100M Conversion Of San Jose Office Building To Data Center

An aging Silicon Valley office building is now operating as a data center, but these conversions remain a rarity despite the region’s lackluster office market.

Hong Kong-based RiCloud has completed a $100M conversion of a vacant San Jose office building into a colocation data center. What was previously an 80K SF SF office building constructed in the mid-1980s will now house up to 1,500 server racks with 10 megawatts of capacity, Data Center Dynamics reports.

Office-to-data center conversions are unusual due to the expensive structural changes that are generally required for such buildings to house IT infrastructure. But with Silicon Valley hungry for new server space and the future of its office demand uncertain, at least one developer is betting the market conditions make such projects pencil.

The San Jose facility is the first U.S. data center for RiCloud, a division of Hong Kong company Yuxing InfoTech Investment Holdings, which aims to offer colocation services in the U.S. The company acquired the 4.7-acre site in 2017, and began the building’s renovation in 2019, according to the Silicon Valley Business Journal. 

While new data center projects on sites that formerly housed offices or industrial facilities are becoming increasingly common, conversions that incorporate an existing office structure are rare.

RiCloud’s San Jose project exemplifies some of the most common challenges in this kind of reuse. Floor plates had to be significantly reinforced to be able to support the weight of server racks and power and cooling equipment, while ceilings had to be raised to accommodate standard IT rack heights.  

Beginning in the mid-2000s, a brief trend of conversions saw underutilized buildings repurposed into data centers — from the Prince spaghetti factory near Boston to suburban shopping malls. But modularization of data center construction and the growing need for scale have generally made developing from the ground up significantly less expensive than retrofitting an existing building. 

Yet Silicon Valley’s struggling office market and dramatically constrained data center supply could mean such adaptive reuse occasionally makes sense for developers.

San Jose’s office sector, like the Bay Area’s in general, has been among the slowest to bounce back since cases of Covid-19 have begun to decrease. Vacancy rates sit near 12.5%, compared to 6% in 2019, according to CBRE. Workers in the nation’s tech hub seem to have wholly embraced remote work, with Kastle Systems' latest data showing San Jose and San Francisco have the two lowest return-to-office rates of the 10 markets it covers.

While offices sit empty, demand for data centers in Silicon Valley is significantly outpacing supply. Despite being one of the nation’s largest data center markets, developable land and power are continuing to contract across Northern California, with vacancy rates below 5%, according to an August report from JLL. With few viable data center development opportunities and tech companies hungry for server space, conversions may become a viable option on office sites with access to the power and fiber connectivity operators need.