By Raul Saavedra, Managing Director, JLL
The Cloud. The Internet of Things (IoT). Artificial intelligence. Digital transformation. 5G.
These are just a few of the drivers behind the tremendous explosion in data demand in the U.S. today. They are also big reasons why the U.S. reportedly needs upwards of 4,000 new data centers to be built by 2020 just to keep pace with demand. That’s about 100,000MW of capacity. Our own JLL data shows that there is currently only about 400MW of capacity under construction worldwide.
So, why are so few operators willing to build spec? Take Santa Clara, for example. It’s the heart of “Silicon Valley” and is widely considered to be one of the Top 5 data center markets in the country but with the exception of a couple of operators, there’s not much spec construction happening.
As Lee Kestler, Chief Commercial Officer of Vantage Data Centers, recently told me: “I think if we had additional capacity in this [Santa Clara] market, you would probably see more [data center leasing] business.”
Vantage is building in Santa Clara
Vantage is a company that should know. I interviewed Lee in Santa Clara at V6, a brand new 9MW data center building which Vantage brought on line earlier this year and which is fully leased. V5, Vantage’s latest building – with 15 MW of capacity – will come online later this year and is already 50 percent preleased.
Vantage is a wholesale operator that has seen solid growth in demand, primarily through the expansion of its existing tenants (aka ‘logos’). Vantage has a great reputation for building and delivering data centers on time as well as price competitiveness and they offer a Total Cost of Occupancy (TCO) model that appeals to many larger logos.
Expansion outside of California
In addition to building spec in Santa Clara and already having a presence in Washington state, Vantage is expanding its business in Ashburn, Virginia, where it is building a 108MW campus. The Ashburn campus is in the Dulles Technology Corridor, home to more than 650 data centers and where 70 percent of all Internet traffic flows through. The first 24MW phase of Vantage’s Ashburn campus is on an accelerated schedule and will be delivered early next year. Furthermore, they have been rumored to be looking at additional markets and are known to be aggressive.
Vantage delivers a turnkey product to its ‘logos’, which is something many in the DC industry aren’t prepared to do. They have the advantage of having very deep operational and construction expertise as well as an extensive grounding in real estate, so they have the ‘chops’ to be able to see opportunity and take on risk, when it is needed.
Vacancy in the top data center markets is currently low so it’s a good time for more operators to take on spec development. At the same time, construction costs are high and there is risk in any development. Nevertheless, companies like Vantage and others are showing it can be done.
I specialize in Data Center real estate for JLL on the West Coast. Prior to joining JLL in 2016, I was a senior asset manager with Digital Realty Trust, Inc., the world’s largest owner and operator of data centers.
Contact me directly by email at email@example.com.