• About Us
  • Partnership Opportunities
  • Privacy Policy

Data Center Frontier

Charting the future of data centers and cloud computing.

  • Cloud
    • Hyperscale
  • Colo
    • Site Selection
    • Interconnection
  • Energy
    • Sustainability
  • Cooling
  • Technology
    • Internet of Things
    • AI & Machine Learning
    • Edge Computing
    • Virtual Reality
    • Autonomous Cars
    • 5G Wireless
    • Satellites
  • Design
    • Servers
    • Storage
    • Network
  • Voices
  • Podcast
  • White Papers
  • Resources
    • COVID-19
    • Events
    • Newsletter
    • Companies
    • Data Center 101
  • Jobs
You are here: Home / Cloud / Data Center Construction Surging Amid Supply Constraints in Top Markets

Data Center Construction Surging Amid Supply Constraints in Top Markets

By Rich Miller - December 2, 2020 1 Comment

Data Center Construction Surging Amid Supply Constraints in Top Markets

The QTS Data Centers Shellhorn DC-1 project in Ashburn. (Image: QTS)

LinkedinTwitterFacebookSubscribe
Mail

This week Data Center Frontier is highlighting market trend data for 2020. After starting with data center leasing activity, we take a deeper dive into data center construction trends.   

Data center developers are scrambling to add capacity, as this year’s record leasing activity has consumed much of the available supply of server space. Several leading markets are seeing a boom in construction, including projects to deliver inventory that has already been pre-leased to cloud platforms and video service providers.

“This year has been crazy,” said Buddy Rizer, the Executive Director of Economic Development for Loudoun County, Virginia. “We’ve had 26 fast-track (data center construction) projects since March. Normally, we’ll have 15 in an entire year, so that’s more than twice as many projects than ever before.

“We’re looking at over 6 million square feet of new data center space,” said Rizer.

By historic standards, that is an extraordinary amount of new construction, even for Northern Virginia, which is the world’s largest data center market. This is especially true during the COVID-19 pandemic, which creates challenging conditions for construction teams and the supply chain that supports them.

In this case, the pandemic is serving as both an accelerant and an obstacle. In 2020, data center demand has been led hyperscale data center operators like Google, Microsoft, Amazon Web Services and Facebook, who need more capacity to address the societal shift to online activity during the COID-19 pandemic. Leasing surged in the second quarter of 2020 during a 30 percent surge in Internet traffic, with some video conferencing services like Zoom seeing much larger increases in demand.

Largest Markets See Supply Constraints

Northern Virginia is the focal point for new construction, but it is hardly alone. More than 373 megawatts of new wholesale data center construction is underway across major markets in the United States, according to real estate firm CBRE, which forecasts that total data center inventory will grow by 13.8% in 2021.

Others have even higher numbers. Cushman & Wakefield and datacenterHawk estimate Northern Virginia construction projects at 322 megawatts, with Silicon Valley, Chicago and Atlanta all having more than 100 megawatts of active construction projects for 2021.

“Demand in Northern Virginia remains insatiable, with all major players under construction,” said Cushman Managing Director Sean Brady said at a recent CAPRE Media webinar. “That’s a staggering construction number.”

Cushman estimates the vacancy rate in Silicon Valley at about 6 percent, about the same as Northern Virginia, with about 189 megawatts of new construction in the works. Silicon Valley has faced an ongoing shortage of finished data center space due to a dwindling supply of development sites and lengthy approval processes in key data center corridors. That’s why new inventory has been quickly gobbled up by tenants, who often have pre-leased space.

Free Resource from Data Center Frontier White Paper Library

Cloud-Based Gaming Company Case Study
A new white paper from Aligned presents a case study of their multi-year colocation partnership with a global cloud-based gaming company. The report outlines the challenges presented by the client, the solutions provided by Aligned, and three of the key business results achieved by the partnership.
We always respect your privacy and we never sell or rent our list to third parties. By downloading this White Paper you are agreeing to our terms of service. You can opt out at any time.

Get this PDF emailed to you.

Every large wave of new construction in the data center industry is greeted by concerns about overbuilding. As we’ve often noted at DCF, the industry continues to be haunted by the Ghosts of Oversupply Past. The dot-com bust of 2001-2003 punctured the industry’s Field of Dreams era (“Build it, and they will come”) leading to widespread vacancies and bankruptcies.

That experience prompted a shift to phased construction, with space deployed in smaller chunks to align supply with demand. Providers have been more cautious about speculative projects, seeking anchor tenants before proceeding with new builds.

Many of the new projects are already pre-leased, which eliminates the financial risk of empty space, Digital Realty, which is the largest multi-tenant provider in the Northern Virginia market, has pre-leased 100 percent of its new construction in the region.

Jim Kerrigan of North American Data Centers has tracked the industry through several economic cycles, and regularly challenges assumptions about supply and demand.

“Are there too many people in Northern Virginia right now?” Kerrigan said during the CAPRE event. “We ask this question every year. If you asked the landlords at the beginning of 2020, they would say ‘absolutely yes there’s too many.’ The rental rates had dropped at all time lows. But that oversupply in Northern Virginia corrected itself, really with three tenants – Facebook. TikTok and Microsoft. Some folks just had to be there because they have clients that want them there.”

The ‘Build Versus Buy’ Equation May Shift

Securities analyst Sami Badri, a Senior Equity Analyst at Credit Suisse, tracks the supply/demand balance with a metric called “backlog intensity” that compares a developer’s revenue to its capacity that is leased but not yet delivered. His analysis suggests that leading markets remain in catch-up mode on hyperscale inventory.

“We expect more hyperscale outsourcing projects to begin construction, leading to more data center development projects in top colocation markets where supply is constrained,” Badri writes in a recent market analysis. “Given the size of incoming data center infrastructure (large builds), we believe the scale of projects will take longer to deliver versus prior build cycles that could deliver capacity faster.”

Badri also sees a potential demand boost in the buying patterns of cloud and video platforms, who typically build their own data center campuses in some locations, while leasing space from data centers REITs like Digital Realty or Cloud HQ in other places. He believes that mix may shift due to the accelerating demand during the pandemic. As of early 2020, Badri estimated that between 40% and 60% of all data center space is outsourced to data center developers. “We expect this percent of outsourcing to begin indexing closer to the 60% range in 2H20 and through 2022,” Badri notes.

In a capacity-constrained environment, speed is of the essence. Delivering space quickly is a particular challenge during the pandemic, which is expected to stretch some construction timelines. That will likely benefit data center developers, whose core competency is rapid deployment of server space – rather than search algorithms or social media or dance videos.

Loudoun County has a Fast Track Program that provides priority reviews for economic development projects that have significant impact on the tax base, helping applicants navigate the permitting process. When we wrote about the pandemic building boom in July, there were seven fast-track projects. Since then, an additional 19 projects have sought fast-track approvals in Loudoun County, home to the “Data Center Alley” cloud cluster in Ashburn.

Several of the new projects in Northern Virginia are massive campuses designed for development over years. Two examples:

  • Digital Realty plans to build the world’s largest multi-tenant data center campus near Dulles Airport in Northern Virginia. The Digital Dulles campus will create 7.5 million square feet of new data center space in the world’s most active cloud market.
  • Amazon Web Services is continuing to expand with a massive data center campus just south of Dulles Airport, which could add up to 2.5 million square feet of cloud computing capacity.

But other projects have moved extremely quickly to bring new space online. Rizer noted a project from QTS Data Centers, which just opened its Shellhorn DC-1 in Ashburn, a 300,000 square foot data center that was completed in one of the shortest build timelines yet in Loudoun.

“The Fast Track Program is designed for just 15 projects, so people are looking incredibly hard all across the county to get these to market,” said Rizer. “It has been just an incredible time to be working with the industry on such an important initiative, when we’ve all made this transition to digital. The way we entertain ourselves, the way we talk with our kids, the way we are learning and the way we’re working … the data center industry has never been more important to our daily lives than it is now. So this has been quite an experience.”

Next: What the surge in demand and construction has meant for pricing and lease terms.   

LinkedinTwitterFacebookSubscribe
Mail

Tagged With: Amazon Web Services, Ashburn, Data Center Construction, Digital Realty, Editors Choice 1, Northern Virginia, QTS Realty

Newsletters

Stay informed: Get our weekly updates!

Are you a new reader? Follow Data Center Frontier on Twitter or Facebook.

About Rich Miller

I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

Comments

  1. drwiseone@yahoo.com'Donald R. Wise says

    December 4, 2020 at 11:19 am

    I enjoy your stories on data centers in VA. This is an exploding market for years to come. I am amazed at how quickly the equipment becomes outdated and how contractors are trying to keep up with customer demands. Reading about the construction of these massive structures are mind blowing. Regarding data centers in VA, are there resources that will tell me details about the customers (owners), and the general contractors building these structures? I would like to research this information from the current years back to 5 years ago. Thanks for any help you can provide. Stay safe and have a great day and weekend!

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • Twitter

Voices of the Industry

Data Center Sustainability: Evolution or Revolution

Data Center Sustainability: Evolution or Revolution There is no doubt that data centers’ voracious appetite for ping, power, and pipe will continue to grow - even accelerate due to unheralded force majeure events.  Therefore, sustainability must have Board-level priority and investment across the entire data center ecosystem.

DCF Spotlight

The COVID-19 Crisis and the Data Center Industry

The COVID-19 pandemic presents strategic challenges for the data center and cloud computing sectors. Data Center Frontier provides a one-stop resource for the latest news and analysis for decision-makers navigating this complex new landscape.

An aerial view of major facilities in Data Center Alley in Ashburn, Virginia. (Image: Loudoun County)

Northern Virginia Data Center Market: The Focal Point for Cloud Growth

The Northern Virginia data center market is seeing a surge in supply and an even bigger surge in demand. Data Center Frontier explores trends, stats and future expectations for the No. 1 data center market in the country.

See More Spotlight Features

White Papers

Application of EPA Diesel Tier 4 Final Certified & Compliant Generators

The EPA mandates that all stationary nonemergency generators meet Tier 4 emissions levels. A new white paper from Kohler explains the differences between systems that are compliant through aftertreatment devices, and those that are factory-certified. Get the report to learn more about key considerations and solutions.

Get this PDF emailed to you.

We always respect your privacy and we never sell or rent our list to third parties. By downloading this White Paper you are agreeing to our terms of service. You can opt out at any time.

Newsletters

Get the Latest News from Data Center Frontier

Job Listings

RSS Job Openings | Peter Kazella and Associates, Inc

  • AutoCAD Designer - Wayne, NJ
  • Generator Technician - East Rutherford, NJ
  • Data Center QA / QC Manager - Huntsville, AL
  • Data Center QA / QC Technician - Omaha, NE
  • Data Center QA / QC Manager - Phoenix, AZ

See More Jobs

Data Center 101

Data Center 101: Mastering the Basics of the Data Center Industry

Data Center 101: Mastering the Basics of the Data Center Industry

Data Center Frontier, in partnership with Open Spectrum, brings our readers a series that provides an introductory guidebook to the ins and outs of the data center and colocation industry. Think power systems, cooling, solutions, data center contracts and more. The Data Center 101 Special Report series is directed to those new to the industry, or those of our readers who need to brush up on the basics.

  • Data Center Power
  • Data Center Cooling
  • Strategies for Data Center Location
  • Data Center Pricing Negotiating
  • Cloud Computing

See More Data center 101 Topics

About Us

Charting the future of data centers and cloud computing. We write about what’s next for the Internet, and the innovations that will take us there. We tell the story of the digital economy through the data center facilities that power cloud computing and the people who build them. Read more ...
  • Facebook
  • LinkedIn
  • Pinterest
  • Twitter

About Our Founder

Data Center Frontier is edited by Rich Miller, the data center industry’s most experienced journalist. For more than 20 years, Rich has profiled the key role played by data centers in the Internet revolution. Meet the DCF team.

TOPICS

  • 5G Wireless
  • Cloud
  • Colo
  • Connected Cars
  • Cooling
  • Cornerstone
  • Coronavirus
  • Design
  • Edge Computing
  • Energy
  • Executive Roundtable
  • Featured
  • Finance
  • Hyperscale
  • Interconnection
  • Internet of Things
  • Machine Learning
  • Network
  • Podcast
  • Servers
  • Site Selection
  • Social Business
  • Special Reports
  • Storage
  • Sustainability
  • Videos
  • Virtual Reality
  • Voices of the Industry
  • Webinar
  • White Paper

Copyright Data Center Frontier LLC © 2021