Northern Virginia is the epicentre of US data centre boom and home to state-of-the-art facilities. Christopher O’Dea reports
The front line in the battle for market share in the booming US data centre industry runs right through the countryside surrounding the nation’s capital, a region that last saw pitched battle during the US Civil War. Today, the object of competition is data-intensive work for the US Federal government, a cluster of advanced research centres, and the tech services and consulting companies that serve them. And just as the Union prevailed largely on the strength of new military and rail technology, the data centre battle is redefining how tech companies describe computing power, and how data itself is stored and managed.
The epicentre of the boom is Ashburn, in Louduon County, Virginia, just northwest of Washington DC. Loudon was the wealthiest county in the US for two consecutive years, until it lost to nearby Falls Church, Virginia in 2014. Six of the 10 wealthiest counties in the US are now in the Washington DC area, a concentration of riches so great that the US Census Bureau designates Ashburn as a statistically significant municipal entity.
Located within the Dulles Technology Corridor, Ashburn hosts high-tech businesses ranging from Verizon Business to Telos, a private IT consulting firm with a significant defence and cybersecurity business, and the Wikimedia Foundation, parent of Wikipedia. Scientific occupants of Ashburn include George Washington University’s Virginia Science and Technology Campus and the Howard Hughes Medical Institute’s Janelia Farm Research Campus.
In fact, there is more data centre capacity available or under construction in Northern Virginia than in any other technology hub in the US, according to Digital Realty, one of the major REITs specialising in the sector. Digital Realty says Northern Virginia’s total supply at the end of the second quarter of 2014 was 67MW.
As data centres consume more power, electricity has become the benchmark that matters, according to Hossein Fateh, co-founder, president and CEO of DuPont Fabros Technology, another major data centre REIT. Each megawatt powers about 4,000 servers, analysts say, and leading industry association AFCOM says data centre operators rank availability of sufficient power as the number one challenge in data centre consolidation and expansion projects aimed at reducing the number of servers, resulting in high-density environments.
Silicon Valley is the second-largest data centre market in the US, with total supply of 44MW at the end of the second quarter, according to Digital Realty. Those numbers include significant amounts of sub-lease capacity in both areas, which typically does not come on the market all at once.
In fact, “supply pressure may be moderating” in Northern Virginia, says David Rodgers, senior real estate research analyst for office and industrial REITs at Baird. DuPont has seen modest market rent increases of 1-3% from some wholesale data centre clients, indicating that the market is starting to digest the supply overhang the developed in 2010 and 2011, says Rodgers.
While there is 20MW of potential sub-lease capacity in Northern Virginia, Rodgers says most of that stems from Yahoo vacating DuPont Fabros facilities in Ashburn. But the capacity will come onto the sub-lease market in tranches between 2015 and 2019, which should cushion the impact on rents, he adds. Yahoo is moving its data operations to a hydro-powered facility in upstate New York.
Data centres in Northern Virginia are also growing in terms more familiar to real estate investors – in square footage. Overall, the market is about to surpass New York, according to Jason Verge, an industry analyst at Data Center Knowledge, a website that tracks the data centre and web hosting industries. Verge says Northern Virginia will overtake the New York metro as the biggest multi-tenant data centre market in the country by the beginning of 2015.
At the end of 2013, says Verge, Northern Virginia had 3.22m sqft of multi-tenant data centre space, while New York had 3.25m sqft. Loudoun County estimates that the total market – including both multi-tenant and enterprise-dedicated facilities – is 5.2m sqft, with more than 3m sqft in development.
Michael Levy, senior analyst at 451 Research, an IT research and advisory company, predicts new supply will increase 14% year-on-year in Northern Virginia, while the New York metro market will grow by just 11%. New York is the third-largest market, with a total supply of 28MW, but virtually all of that is existing capacity and very little construction is underway, according to Digital Realty’s estimates.
Both major REITs recently launched new projects in Ashburn. In late September DuPont opened ACC7, a state-of-the-art data centre on its Ashburn campus. At 446,000 sqft, it is the company’s largest data centre.
DuPont says ACC7 will be the standard for future data centres. It features an evaporative cooling system that uses reclaimed water to minimise the environmental impact of relying on potable water, and a flexible design intended to enable a broad spectrum of tenants to tailor server cabinet layouts and power densities to specific needs.
Earlier in September, Digital Realty announced a joint venture with Griffin Capital Essential Asset REIT, raising $188m in a transaction in which Griffin took an 80% stake in a fully leased data centre in Ashburn. Digital Realty will manage the data centre and retain a 20% interest in the facility, a 9MW, 132,000sqft centre leased to financial services and social media customers.
Digital Realty says the deal, which carried a 7.05% cap rate and 5% preferred equity return on its minority stake, brings the REIT a new source of equity and establishes a long-term relationship with a partner seeking to expand into its Turn-Key Flex data centres.
Overall, northern Virginia’s multi-tenant data centres are in a relatively strong position, says Rodgers. Baird has a neutral outlook for Digital Realty, and a positive-outperform outlook on DuPont Fabros.
Levy adds: “With a torrent of cloud service providers and media/content providers deploying significant workloads in Ashburn, the market is solidifying its position as the epicentre of the internet.”