The Silicon Valley Data Center Market remains one of the dominant markets in the U.S. Depending upon how the existing capacity and total square footage dedicated to data center use is calculated, Silicon Valley is the No. 2 market behind Northern Virginia and in particular the Ashburn submarket.
The Silicon Valley market is unique in data center site selection as it remains in a near-constant “pre-leasing” mode, meaning that as soon as any data center capacity — whether wholesale colocation or turnkey data center — begins construction, the pent-up demand gobbles up the capacity before construction is complete.
The region — generally starting with San Jose to the east working westward up to and including Palo Alto — is concentrated, especially for data center site selection, in the city of Santa Clara, where Silicon Valley Power is the electric provider. PG&E is the electric provider for the rest of Silicon Valley region, including nearby San Jose where a few other colocation operators are located. However, PG&E’s power rates can be 20%-30% higher than Silicon Valley Power’s. Given that power is the number one expense category in data center operations, this power cost delta in PG&E rates is a strong deterrent to considering any location outside of the Santa Clara municipality.
Within the 19 square miles that comprise Santa Clara, Silicon Valley Power is the low-cost and very reliable power provider that has embraced the data center market. In fact, Silicon Valley Power has estimated that it has a substation in every half-mile radius of the city, which is far denser than any other region in the U.S.
The Silicon Valley market has significant challenges for future growth including:
The available land suitable for data center use or any real estate development, especially in Santa Clara, is becoming extremely scarce. Land prices have jumped over the past few years to where asking prices are nearing and sometimes exceeding $100 per square foot. Colocation developers have had to “go vertical” on newer sites to leverage the cost of the land and infrastructure. Recent announcements from some turnkey data center groups are proposing three to four floors of raised-floor environment.
Silicon Valley has several competitors in the market
Just about every major colocation operator and developer has a presence in the market, some of them significant:
Several other colocation operators with a national multisite presence have enterprise-class colocation facilities that will continue to be market players including:
The Silicon Valley region will continue to be a major player in the data center and colocation world due to its proximity to the major players in the Internet and cloud sectors. At the same time, several nearby data center markets, such as Phoenix, Las Vegas/Reno, and Portland/Hillsboro provide an excellent cost-effective alternative to Silicon Valley’s much higher prices. Yet its location in the mecca of the tech world will ensure that Silicon Valley will remain a top data center market.