LOS ANGELES—Technology consumption and the adoption of cloud-based products is spurring major growth in the data center niche. According to a new study from JLL, data cloud providers expect to triple their infrastructure in the next three years. As a result, lease negotiations and investor demand is expected to soar this year. To find out how the West Coast data centers are performing, we sat down with JLL experts from major West Coast markets for an exclusive interview. Here, we get a snap shot of data center performance and the anticipated growth in the next five years.
GlobeSt.com: How does your data center market stand out among other key market in the West?
Darren Eades, JLL Executive Vice President, Los Angeles: Los Angeles is home to one of the premiere network intensive data center facilities in the country. Multiple undersea cables with several more in the works allow for industry leading connectivity to Asia Pac.
Conan Lee, JLL Managing Director, Seattle: The Pacific Northwest benefits from a much lower total cost of operations or ownership (TCO) than other data center markets on the West Coast such as Northern California, Sacramento and Los Angeles. For example, data center operators in Central Washington access renewable energy at the lowest power rate in the nation, and operate in an environment conducive to a very low Power Usage Effectiveness (PUE) that reduces costs to cool the data center. They also enjoy lower sales and use tax abatements as well as land costs. These factors have helped to create a very robust telecom data center market. The region also has unique markets such as Hillsboro, Oregon which has a plethora of cable landing stations providing unmatched speed to Asia, which is a growing market for the West Coast data center sector.
The Northwest is a top five U.S. market for leased data center space. However, when one calculates owned data center absorption, I estimate that the Northwest is also among the top five data center markets in the world in terms of sheer amount of power consumed. Many major data center users are expanding and building multi-billion dollar mega facilities in rural areas such as Quincy, WA.
Raul Saavedra, JLL Executive Vice President, San Francisco/Silicon Valley: Northern California is one of the most mature data center markets in the world so it is well populated with major data center players. If a major player isn't here yet, they probably soon will be. Consequently, it's currently a very tight market with single digit vacancy and very little space to build. That said, data center rents haven't moved significantly enough in the last 12 months in our region to justify new development. Land prices—now moving past $100 per square foot—are much higher than other competing markets in the West making new construction much tougher here than markets like central Oregon or Arizona. When looking to acquire/expand or develop new data centers, operators are not just competing with those markets, they are also competing with other property types. So, Northern California is a strong data center market—in the sense of low vacancy– but is not without its challenges, especially when it comes to potential lease rollover and the potential to have not enough demand in the pipeline.
Mark Bauer, JLL Managing Director/National Director Data Center Solutions Group, Phoenix: Phoenix serves as a very advantageous market for both data center developments and colocation requirements. Over the last decade, Phoenix's net absorption of colocation product always falls within the top seven year over year. Phoenix has extremely competitive wholesale colocation pricing, especially compared to other markets in the Western U.S. These low colocation costs, supported by strong data center tax legislation, allows for attractive solutions for data center requirements from a total cost of occupancy perspective.
Mark Bauer, JLL Managing Director/National Director Data Center Solutions Group, Denver: Denver continues to succeed in its niche: being a dominant retail colocation market, including many options within the managed services sector. As a crossroads to the West, Denver will continue to act as a strong regional connectivity hub by providing ideal access and has established networks and POPs for many large corporations throughout the country. Providers such as zColo and EdgeConnex will continue to benefit from end-users seeking a solution to enable content delivery at the edge of the Internet. Colorado Springs continues to be a desirable market for enterprise data center developments heavily influenced by strong advantages such as its municipally owned utility provider, CSU, offering excellent incentives on discounted electrical rates, the city's grants and expedited permitting process, relatively low land purchase costs and a lack of natural disasters.
GlobeSt.com: How will your data center market evolve over the next five years?
Eades, Los Angeles: The increased usage of internet media, mobile applications and the cloud have enhanced the demand for state of the art facilities to house this data. There is a misconception that the cloud has eliminated the need for data centers, however the data still needs to reside somewhere. Users are becoming more aware of how to better utilize technology to decrease their power consumption and footprint, thus reducing their individual need for data center space. Although the increased demand for data will continue drive the market and data centers will still be an integral part of the equation.
Lee, Seattle: The West Coast will experience a surge of demand as Asia taps into US software, content delivery and web retailers but the Pacific Northwest especially will likely have a much greater connection to Asia, especially via Asian companies leasing and building data center product here in the region. I expect up to 85 percent of all of the major data center operators will have some type of expansion of portfolio into the Northwest in the next few years.
Finally, we're seeing greater demand for data center properties that encompass telecom and data center use and are closer to the populations they serve in major cities. This is a result of the rapid development of the Internet of Things (IoT) – the ability to provide unique IP addresses to things such as thermostats, lighting systems, refrigerators and garage door openers as well as people and animals. Projections indicate that by 2020 there will be more than 30 billion connected things worldwide and IoT providers want to cut risk in their downtime when serving their customers by having telecom and data center facilities closer to them.
Saavedra, San Francisco/Silicon Valley: That's a tough question. Much depends on demand. We're anticipating slightly less demand for traditional data centers as more companies move to the cloud and also look to do more with less real estate. This may result in some danger of overbuilding in the long run but we aren't seeing this scenario play out quite yet. For sure we are going to see more private equity investors buying into the Northern California data center market and the pending sale of the Vantage portfolio in Santa Clara will drive market conditions and expectations through 2017. I also believe we'll also see more Chinese telecoms planting a flag or expanding in the Northern California market and Pacific Northwest over the next year or so as they look to ramp up their offerings to Chinese companies looking to locate in the U.S.
Bauer, Phoenix: Phoenix will see a strong uptick in available colocation product, especially as existing and new providers look to capture eminent demand in the near future. Hyperscale data centers initiatives from Azure, Google Cloud, AWS and Apple will become more prevalent from the trend of public, private and hybrid cloud requirements in the market. East Mesa in particular has positioned itself well to be a “catcher's mitt” for much of this upcoming data center development.
Bauer, Denver: Denver has yet to recognize any of the large cloud behemoths to enter its market, but as the trend toward more wholesale product becomes increasingly prominent, coupled with anticipated new tax legislation, it is expected that Amazon Web Services, Microsoft Azure, Google Cloud or SoftLayer may make a push to be located in Denver.
LOS ANGELES—Technology consumption and the adoption of cloud-based products is spurring major growth in the data center niche. According to a new study from JLL, data cloud providers expect to triple their infrastructure in the next three years. As a result, lease negotiations and investor demand is expected to soar this year. To find out how the West Coast data centers are performing, we sat down with JLL experts from major West Coast markets for an exclusive interview. Here, we get a snap shot of data center performance and the anticipated growth in the next five years.
GlobeSt.com: How does your data center market stand out among other key market in the West?
Darren Eades, JLL Executive Vice President, Los Angeles: Los Angeles is home to one of the premiere network intensive data center facilities in the country. Multiple undersea cables with several more in the works allow for industry leading connectivity to Asia Pac.
Conan Lee, JLL Managing Director, Seattle: The Pacific Northwest benefits from a much lower total cost of operations or ownership (TCO) than other data center markets on the West Coast such as Northern California, Sacramento and Los Angeles. For example, data center operators in Central Washington access renewable energy at the lowest power rate in the nation, and operate in an environment conducive to a very low Power Usage Effectiveness (PUE) that reduces costs to cool the data center. They also enjoy lower sales and use tax abatements as well as land costs. These factors have helped to create a very robust telecom data center market. The region also has unique markets such as Hillsboro, Oregon which has a plethora of cable landing stations providing unmatched speed to Asia, which is a growing market for the West Coast data center sector.
The Northwest is a top five U.S. market for leased data center space. However, when one calculates owned data center absorption, I estimate that the Northwest is also among the top five data center markets in the world in terms of sheer amount of power consumed. Many major data center users are expanding and building multi-billion dollar mega facilities in rural areas such as Quincy, WA.
Raul Saavedra, JLL Executive Vice President, San Francisco/Silicon Valley: Northern California is one of the most mature data center markets in the world so it is well populated with major data center players. If a major player isn't here yet, they probably soon will be. Consequently, it's currently a very tight market with single digit vacancy and very little space to build. That said, data center rents haven't moved significantly enough in the last 12 months in our region to justify new development. Land prices—now moving past $100 per square foot—are much higher than other competing markets in the West making new construction much tougher here than markets like central Oregon or Arizona. When looking to acquire/expand or develop new data centers, operators are not just competing with those markets, they are also competing with other property types. So, Northern California is a strong data center market—in the sense of low vacancy– but is not without its challenges, especially when it comes to potential lease rollover and the potential to have not enough demand in the pipeline.
Mark Bauer, JLL Managing Director/National Director Data Center Solutions Group, Phoenix: Phoenix serves as a very advantageous market for both data center developments and colocation requirements. Over the last decade, Phoenix's net absorption of colocation product always falls within the top seven year over year. Phoenix has extremely competitive wholesale colocation pricing, especially compared to other markets in the Western U.S. These low colocation costs, supported by strong data center tax legislation, allows for attractive solutions for data center requirements from a total cost of occupancy perspective.
Mark Bauer, JLL Managing Director/National Director Data Center Solutions Group, Denver: Denver continues to succeed in its niche: being a dominant retail colocation market, including many options within the managed services sector. As a crossroads to the West, Denver will continue to act as a strong regional connectivity hub by providing ideal access and has established networks and POPs for many large corporations throughout the country. Providers such as zColo and EdgeConnex will continue to benefit from end-users seeking a solution to enable content delivery at the edge of the Internet. Colorado Springs continues to be a desirable market for enterprise data center developments heavily influenced by strong advantages such as its municipally owned utility provider, CSU, offering excellent incentives on discounted electrical rates, the city's grants and expedited permitting process, relatively low land purchase costs and a lack of natural disasters.
GlobeSt.com: How will your data center market evolve over the next five years?
Eades, Los Angeles: The increased usage of internet media, mobile applications and the cloud have enhanced the demand for state of the art facilities to house this data. There is a misconception that the cloud has eliminated the need for data centers, however the data still needs to reside somewhere. Users are becoming more aware of how to better utilize technology to decrease their power consumption and footprint, thus reducing their individual need for data center space. Although the increased demand for data will continue drive the market and data centers will still be an integral part of the equation.
Lee, Seattle: The West Coast will experience a surge of demand as Asia taps into US software, content delivery and web retailers but the Pacific Northwest especially will likely have a much greater connection to Asia, especially via Asian companies leasing and building data center product here in the region. I expect up to 85 percent of all of the major data center operators will have some type of expansion of portfolio into the Northwest in the next few years.
Finally, we're seeing greater demand for data center properties that encompass telecom and data center use and are closer to the populations they serve in major cities. This is a result of the rapid development of the Internet of Things (IoT) – the ability to provide unique IP addresses to things such as thermostats, lighting systems, refrigerators and garage door openers as well as people and animals. Projections indicate that by 2020 there will be more than 30 billion connected things worldwide and IoT providers want to cut risk in their downtime when serving their customers by having telecom and data center facilities closer to them.
Saavedra, San Francisco/Silicon Valley: That's a tough question. Much depends on demand. We're anticipating slightly less demand for traditional data centers as more companies move to the cloud and also look to do more with less real estate. This may result in some danger of overbuilding in the long run but we aren't seeing this scenario play out quite yet. For sure we are going to see more private equity investors buying into the Northern California data center market and the pending sale of the Vantage portfolio in Santa Clara will drive market conditions and expectations through 2017. I also believe we'll also see more Chinese telecoms planting a flag or expanding in the Northern California market and Pacific Northwest over the next year or so as they look to ramp up their offerings to Chinese companies looking to locate in the U.S.
Bauer, Phoenix: Phoenix will see a strong uptick in available colocation product, especially as existing and new providers look to capture eminent demand in the near future. Hyperscale data centers initiatives from Azure,
Bauer, Denver: Denver has yet to recognize any of the large cloud behemoths to enter its market, but as the trend toward more wholesale product becomes increasingly prominent, coupled with anticipated new tax legislation, it is expected that
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