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Northern Virginia now leads the data center market, with two recent reports showing the New York area has fallen from its spot as the No. 1 data center location.
A report from 451 Research LLC, based in New York, and commercial real estate company Jones Lang LaSalle Inc. (JLL), headquartered in Chicago, have named the Northern Virginia area, including Ashburn, as the largest data center market in the United States.
To put it in perspective, there's more data center space in Ashburn than in all of Canada, according to Kelly Morgan, research director at 451 Research, who authored a report that puts Northern Virginia at No. 1.
"[Northern Virginia] had been neck and neck with New York-New Jersey for the past few years," she said.
Half of the Northern Virginia market is in Ashburn, with the surrounding area in Loudon Country home to the rest of the supply.
Northern Virginia is on par with Silicon Valley and the New York-New Jersey area, according to Mike Sapien, an analyst with Ovum Ltd., an analyst firm headquartered in London.
"I tend to think Northern Virginia is the top market and will stay there for several reasons -- the growth of Internet-based businesses there, government business and its position as an Internet hub," he said.
The presence of the government nearby separates Northern Virginia from the other top markets, he said. The federal government is a large potential customer that doesn't have such a significant presence near other markets.
Silicon Valley and New York could surpass Northern Virginia with some significant additional business from Internet-based organizations, he said. Silicon Valley could surpass Northern Virginia with increased demand from IP and telecom providers, Web 2.0 and Internet firms -- such as Google, Apple and Yahoo.
What makes Northern Virginia a data center heartland?
The robust connectivity and relatively affordable real estate in Northern Virginia are two of the factors that have pushed it to the top, according to Jabez Tan, senior analyst at Structure Research, headquartered in Toronto.
Mike Sapienanalyst, Ovum Ltd.
Compared to New York-New Jersey and Silicon Valley, Northern Virginia has more available land and power costs are lower.
Tan points out that Digital Realty Trust Inc., DuPont Fabros Technology Inc. and Equinix Inc. all have its largest holdings in Northern Virginia, and RagingWire Data Centers Inc. has recently expanded its Virginia campus.
Northern Virginia's role in the start of the Internet has helped its rise in popularity, said Allen Tucker, managing director at JLL. Area such as Herndon Parkway -- considered the original "Internet roadway" -- and the arrival of Equinix and the International Business Exchange in 1998 helped put the region on the data center map.
The growth of colocation facilities, in general, has also been fueled by a shift away from enterprise data centers and greater acceptance by business leaders to outsource IT operations.
The build-to-suit data center market "is nonexistent," Tucker said.
"The C-suite is realizing it is Capex," he said, and colocation removes infrastructure costs from the company's balance sheet.
The Northern Virginia market also became an attractive spot after the terrorist attacks of Sept. 11, 2001, when banks, for example, were under pressure from the Securities and Exchange Commission to move assets out of the New York-New Jersey metropolitan area, Tucker said.
Communities such as Ashburn and Reston also put data center operators near the government, what Tucker calls "the largest content manufacturer in the country."
On top of that, Virginia offers cheap power and tax incentives.
Indeed, Northern Virginia's economic climate welcomes data centers, according to John Stewart, senior vice president of investor relations at Digital Realty based in San Francisco. In some regions, he said, data centers are viewed as noisy and huge power consumers that don't provide as many jobs as other industries. But Virginia and its local governments have a much more business-friendly attitude than, say, California, he said.
451's Morgan singled out Buddy Rizer, the executive director for economic development in Loudoun County, as somebody who has helped the industry grow in the area.
An increase in NIMBYism -- an acronym meaning "not in my backyard" -- could put the brakes on the industry, Stewart said, especially if new data center builds are close to neighborhoods.
The region is nearing the end of its greenfield site supply, Stewart said, claiming Digital Realty plans to buy one of the last greenfield sites in the area.
But JLL sees more room to grow in the area and predicts that "new, quality land sites" will continue to go on the market in the region.
Northern Virginia's spot at the top may be secure for a while, in large part because Tucker said it would be hard to establish a similar level of connectivity -- there are more than 200 network connections in Northern Virginia -- in another area.
Enterprises in the market for colocation space, for example, give serious consideration to other growing data center markets, including the Dallas area, Pacific Northwest and North Carolina, in large part because of low power costs. But Northern Virginia is almost always in the top four areas being considered, Morgan said.
"When they need bandwidth, they are coming to the Internet hub -- Ashburn," Morgan said.
The growing supply of data center space seemed like it may have pushed prices down, but it hasn't. If areas such as Pennsylvania grow in popularity, it could send Northern Virginia prices down slightly, Morgan said.
"I keep expecting the prices to drop, but it hasn't happened yet," she said.
Power prices in the Northern Virginia are generally between $120 to $140 per kilowatt for customers buying 250 kilowatts or more. That's equivalent to New Jersey, about 10% to 20% less than New York, slightly less than Silicon Valley and similar to North Carolina.
Morgan said the variety of data center operators in the market has helped keep prices in check.
"There are a lot of players in the market, but nobody controls it," Morgan said. "Historic pricing and concessions" will continue into 2016 in the Northern Virginia market, according to the JLL report.
Power costs have fallen slightly in recent years from a high of 6.1 cents per kilowatt hour in 2012 to 5.7 cents in 2014 and 2015, and will remain stable for the next few years, according to JLL.
Robert Gates covers data centers, data center strategies, server technologies, converged and hyper-converged infrastructure and open source operating systems for SearchDataCenter. Follow him on Twitter @RBGatesTT or email him at [email protected]
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