Silicon Valley is the second largest data center market in the U.S., trailing only the Northern Virginia region — no real surprise given the Silicon Valley’s proximity to so many technology companies that have been focused on the Internet since the mid-90s. Technology companies in the Silicon Valley provided this region with a great head start and a ready supply of data center customers. 

Silicon Valley’s importance was initially forged during the dot.com boom and was further enhanced later on by the growth in cloud computing and new technologies. Even though future demand remains very strong over the next two years, the region does have competitors.

The region is home to nearly 2.6 million square feet of commissioned data center space, representing 343 megawatts (MW) of commissioned power, according to data center Hawk.

Silicon Valley’s data center market is concentrated in Santa Clara where data center operators enjoy a significant discount exceeding 20% on its power with Silicon Valley Power over PG&E, which operates throughout the rest of the region.

Silicon Valley has several competitors in the market 
Just about every major player in the retail and wholesale colocation sectors has a presence in the market, some of them significant:

  • Digital Realty: Owns and operates 15 facilities, some of these leased to other colo operators
  • Equinix: Has over 414,000 square feet of colocation space across seven locations in the region; another 14 MW expected to come on line by mid-2017
  • Dupont Fabros: With its recent announcement of a 16 MW lease to be commissioned by the third quarter of 2017, Dupont Fabros will have more than 52 MW in nearly 425,000 square feet by the end of this year.
  • Vantage Data Centers: Has over 335,000 square feet with 45 MW critical IT load, with another 9 MW to be operational by the summer. Vantage also is adding another 70 MW campus in Santa Clara that is in the development stage.
  • CoreSite: Not including Peering Exchange (former MAE West) at 55 South Market in downtown San Jose, CoreSite has four data centers totaling almost 618,000 square feet of colocation and powered shell space. 

Several other colocation operators with a national multisite presence have enterprise-class colocation facilities that will continue to be market players including:

  • InfoMart: With 6 MW under construction. InfoMart will have 15 MWs of critical IT load in its San Jose location.
  • QTS Data Centers: With nearly 1 million square feet of existing data center space across its footprint, QTS has 55,000 square feet at its Santa Clara campus.
  • Central Colo: Founded in 2014 and expanding nationwide into other U.S. markets, Central Colo has 8 MW of capacity at its Sunnyvale site.
  • CyrusOne: One of the largest colo operators in the U.S. without a West Coast location, CyrusOne recently announced that it has secured land for a new Silicon Valley campus. Further announcements are expected with construction starting by midyear. 

Challenges may affect future data center growth in Silicon Valley 
The region has several challenges ahead to maintain its No. 2 ranking and make it attractive during the site selection process that many other metro areas simply do not have:  

  • Land and construction costs: Silicon Valley is a very expensive area to build with land prices continuing to increase. Regional construction costs are the most expensive in the country.
  • Geography: Silicon Valley is located in an active seismic zone, and this is a regional hazard of concern that also contributes to construction costs.
  • Utility expenses: Utility costs, even with the aforementioned Silicon Valley Power, are much higher than the national median average.
  • Water scarcity: Data centers are known for their significant use of water resources. Northern California’s decade-long drought, while mitigated with recent rains, brought these perceived inefficiencies to the forefront. The additional costs to drive energy efficiencies has added significant costs to operate.
  • Competitive markets nearby: Nearby markets such as Portland/Hillsboro, Phoenix and Las Vegas, which can provide better power pricing, minimal risk factors, aggressive economic incentives and cheaper overall construction, are providing excellent alternatives for those companies that do not have to have their data center collocated in the same market as their corporate headquarters. 

These concerns and scarcity have enabled other Tier 1 markets that do not have to contend with these challenges to enjoy significant growth and challenge Silicon Valley for its No. 2 ranking in the next five years.  Both Dallas-Fort Worth and Chicago, which are No. 3 and No. 5, respectively, are the likely markets to overtake Silicon Valley because of their minimal risk profiles and attractiveness during the site selection process.

Conclusions 
The Silicon Valley region will continue to be a major player in the data center and colocation sector due to its proximity to the major players in the Internet and cloud sectors. Though its No. 2 status may be threatened, it will always be considered a critical market.

 

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