Land Constraints To Increasingly Play Role In Data Center Site Selection In Silicon Valley
Silicon Valley remains among the nation’s hottest data center markets due to its proximity to major movers and shakers in the tech industry. But geographic constraints in the main data market of Santa Clara are starting to put pricing pressures on land throughout the Valley, pushing developers to consider other locations not just within the Bay Area, but also elsewhere around the country.
Ongoing demand in 2018 pushed the vacancy rate to record-low levels, according to CBRE’s U.S Data Center Trends Report. The vacancy rate fell below 5% for the first time since CBRE began tracking the data center industry in 2013. The decline was due to the extreme demand of first-generation wholesale capacity.
The state of the Silicon Valley data center market, future developments and the impact of new technologies will be among the topics discussed during Bisnow’s Data Center Investment Conference & Expo, West on Nov. 29.
Equinix and some other providers are pushing to capture more of the wholesale market and have commitments from several technology-centric companies. CBRE expects wholesale demand to be similar to previous years, and new capacity delivering in the next six to 18 months will help capture this demand.
During the first half of 2018, rental rates ranged from $150 to $170 (kilowatts/month) making Silicon Valley the costliest data center market in the country, according to CBRE. During the first half of the year, the Silicon Valley data center market had 10.6 megawatts of absorption, which primarily occurred at CoreSite’s SV7 facility, one of the only newly built data centers with availability.
Another nearly 30 megawatts is under construction with Vantage Data Centers, CoreSite and Digital Realty working on new developments. About half of the new data center capacity was pre-leased during the first half of the year.
The market is the most supply-constrained in the country, but it also is among the most important because of its proximity to some of the world’s largest technology companies and startups, according to Data Center Frontier.
Low-priced power in Santa Clara through Silicon Valley Power continues to attract data center providers into the city, but land is at a premium, and San Jose is now starting to get attention from data center providers. In 2017, Microsoft paid $73.2M for 65 acres in North San Jose with the plan to build a 450K SF, 50 megawatt data center. The price per acre for this site was $1.12M. Comparatively, CoreSite paid $12.2M for a 2-acre expansion in Santa Clara, paying over $6M per acre, according to Data Center Frontier’s latest report on Silicon Valley.
The savings in power still outweigh the cost of land. Data Center Frontier expects Santa Clara, which has 34 data centers, to remain the main data center market in Silicon Valley despite growing interest in other cities.
Accessibility to the data center market was one of the reasons why Digital Bridge acquired Vantage Data Centers in 2017. Vantage has completed one data center campus in Santa Clara and has started construction on a second.
Growth In Other Markets Overtaking Silicon Valley
While companies renting space at data centers in Silicon Valley gain a lot by being close to large tech players, other markets are starting to overtake Silicon Valley.
Other primary markets have rapidly expanded since 2015, with Dallas adding 70 megawatts of capacity and Chicago gaining 120 megawatts through 2017. Silicon Valley only added 55 megawatts during that time. Data Center Frontier expects these markets to surpass Northern California by 2020.
During the first half of this year, Dallas grew by 33.4 megawatts to 267.6 megawatts and Chicago added another 56.6 megawatts, growing inventory to 245 megawatts; both currently have an inventory higher than Silicon Valley’s 234.6 megawatts, according to CBRE. On the other hand, their vacancy rates are twice as high with Dallas at a 19.2% vacancy rate and Chicago reporting a vacancy rate of 11.2% during the first half of 2018.
Phoenix also has become an increasingly active market, absorbing 32.5 megawatts during the first half of the year and adding 46 megawatts of new capacity, according to CBRE. The market is adding another 60 megawatts of capacity, making it the second-largest market for under-construction data centers. Rents in Phoenix are among the lowest of the top data center markets with rents ranging from $120 to $135 (kilowatts/month).
Find out more about the state of the Silicon Valley data center market at Bisnow’s DICE West on Nov. 29 at the San Jose Marriott.
CORRECTION, NOV. 5, 10:05 A.M. PT: A previous version of this story had out-of-date information on Vantage Data Centers' campus construction in Santa Clara. The story has been updated.