February 27, 2017
By: Raul Saavedra, Executive Vice President, JLL
The Northern California data center market continued to chug along in 2016 although we saw a marked slowdown in leasing activity in the fourth quarter. Much of our market’s new activity occurred in the first half of the year with some major users taking down big chunks of capacity.
Even with those big early deals driving vacancy down to single digits, pricing of data center space remained flat and I think that’s a looming problem in 2017 for the sector since land prices in Northern California have increased significantly. In fact, land costs have moved past $100 per square foot in many submarkets. That’s an issue developers need to take seriously as they plan new product.
If you build it, will they come?
Another key question for developers: is demand sustainable? Right now demand seems consistent but, as we all are aware, any significant change in the tech economy could put a damper on that. The good news for Silicon Valley is that the move to the cloud is changing which data centers host cloud infrastructure and where. The Valley’s position as one of the most technologically innovative markets in the world would seem to ensure its long term appeal to cloud providers.
What else to look for this year…
Silicon Valley’s appeal is attracting more capital to our data center market. The sale of the Vantage Santa Clara campus will drive market conditions and expectations in 2017. I anticipate more private equity firms to play a larger role in the industry and our market as they continue looking into data center investments and spaces. Finally, look for more Chinese telecom companies to expand in this market, driving value and providing offerings to Chinese companies looking to locate within the U.S.
About the author:
Raul Saavedra is an Executive Vice President and data center real estate specialist in JLL’s San Francisco office. Prior to joining JLL in 2016, Raul was a senior asset manager with Digital Realty Trust, Inc., the world’s largest owner and operator of data centers.
Contact Raul directly by phone at +1 (415) 354-6914 or via email at firstname.lastname@example.org.