Hillsboro Data Center Market Boosted by Significant Pre-Leasing

The data center market in the Pacific Northwest is seeing substantial growth, as the Portland suburb of Hillsboro, Oregon has emerged as a major hot spot for hyperscale and enterprise facilities. 

While not yet a major market in terms of overall size, the Hillsboro data center market has a rising profile as a destination for data centers. The region benefits from a favorable cost environment, including a prominent enterprise zone and Oregon’s business-friendly tax policies—as well as a climate that’s ideal for keeping servers cool. That’s attractive to sustainability-aware enterprises, who also like the region’s ample supply of renewable energy. 

According to a JLL Data Center Outlook report released in 2021, “With Hillsboro leading the charge, the Pacific Northwest is on track for a potential record year as absorption exceeds all previously forecasted mid-year absorption numbers.” The Hillsboro market grew 84 percent in 2021, according to datacenterHawk.

That growth is poised to continue, as CBRE reports a massive 199 MWs of pre-leasing in the Hillsboro data center market entering 2022, driven by large social media companies. “The under construction total will more than triple Hillsboror’s total inventory,” CBRE says, adding that “the bulk of the new construction is one facility, with the entire capacity going to one large social media company.”

That’s clearly a reference to a major expansion by Meta/Facebook, which has pre-leased multiple buildings from QTS Data Centers. A 2021 filing by QTS and utility Portland General Electric seeks an additional 250 megawatts (MW) of renewable energy capacity to support the 92-acre QTS Hillsboro site.

Digital Realty has also reported strong pre-leasing at its newest campus in Portland.

Hillsboro Ripe with Leading Data Center Players

Hillsboro is a northern suburb of Portland that is home to a large Intel semiconductor fabrication facility. The adjacent Enterprise Zone offers tax benefits and abundant power, making the area a magnet for data center development. Tax breaks saved Hillsboro data center operators and customers $3.1 million in 2019 and $5.4 million in 2018, according to state records.

The Intel campus is surrounded by data center projects for the leading players in data center development, including Digital Realty, NTT Global Data Centers Americas, Stack Infrastructure, QTS Data Centers, EdgeConneX and Flexential, among others.

Much of the optimism around the Hillsboro data center market stems from its emergence as a leading alternative to California, which boasts a large concentration of data centers. The California market has been roiled by the troubles of utility PG&E, which filed for bankruptcy protection in 2019 due to wildfire-related liabilities. The prospect of higher future utility bills, along with PG&E’s imposition of rolling service outages during periods of heightened wildfire risk, has customers looking beyond California’s borders for their West Coast data center workloads.

A key factor in the future of the Hillsboro cluster is how it fares in the fierce competition to woo data center users exiting California. Data center providers in Las Vegas and Phoenix compete aggressively for business from California-based customers, while the Pacific Northwest offers several other attractive options for large single-tenant requirements, including Quincy, Washington and Prineville, Oregon.

A meaningful differentiator is Hillsboro’s direct access to trans-Pacific subsea cables offering connectivity to fast-growing cities in the Asia-Pacific region, which are a key growth market for many customers.

The recent investments in the area made by enterprise users and colocation providers are indicative of large-scale future growth for Portland. The main data center development has occurred in the Portland suburb of Hillsboro, where heavy investments from Intel led to growing interest in the region.

Hillsboro market future bright

Hillsboro has experienced a major uptick in the total amount of megawatts of users currently in the market. The average size per transaction has increased significantly.

The Portland market was home to more than 354,283 square feet (SF) of commissioned data center space, representing 57.81 megawatts (MW) of commissioned power, according to market research from datacenterHawk in 2020.

The real news about Portland is not so much its present, but its future. Data center developers plan to deploy 275 megawatts of new data center capacity in coming years, representing 1.33 million square feet of new space, according to a 2020 Data Center Frontier special report. 

Hillsboro has accounted for nearly 80% of Northwest absorption in 2021 year-to-date, the JLL report shared.

Trends in The Hillsboro Data Center Market 

Trends in Demand

Although Portland is considered a secondary data center market (especially compared to nearby large primary markets Seattle and Northern California), data center users increasingly find the market attractive.

The recent investments in the area made by enterprise users and colocation providers are indicative of large-scale future growth for Portland.

Data center development in Hillsboro was initiated by Stack Infrastructure (formerly known as Fortune Data Centers and  Infomart Data Centers) and Digital Realty in 2011–2012. Other providers, such as T5 Data Centers, Telx (acquired by Digital Realty in 2015), and ViaWest (now Flexential) quickly saw the value in the market, causing a jump to 36 MW of capacity delivered to Portland.

Trends in Supply

The story of Portland as a data center market will be defined in the next several years. With a historic volume of supply in the pipeline, the Hillsboro cluster is poised for dramatic growth. Developers are embracing the thesis that Portland is the hot emerging market for low-cost data center development in the Pacific Northwest.

Data center companies have announced plans for up to 275 MWs of new capacity, representing a potential 1.33 million SF of additional space.

Here’s a look at the major projects:

• NTT Global Data Centers Americas (formerly RagingWire) has opened a 47-acre campus that in Hillsboro that will house up to 144 MWs of critical IT load, and 1 million SF of data center space. The first of five buildings is scheduled to open in the summer of 2020.
• Digital Realty acquired its development site in Hillsboro as part of its purchase of DuPont Fabros in 2017, and has seen strong pre-leasing.
• QTS is actively developing its latest data center on its 92-acre Hillsboro campus, which is set to support five data center buildings totaling 1.5 million square feet of space and 250 megawatts of power capacity.
• Stack Infrastructure has a new 60 MW data center on the remaining 35 acres of land in its Hillsboro footprint.
• Denver based EdgeConneX is also expanding in the Portland market. The company’s Hillsboro facility is located in a traditional office park, and EdgeConneX has acquired an adjacent building and will combine the two buildings through a shared electrical yard.
• Flexential recently completed its 36MW Hillsboro 3 data center, which at 358,000 square feet is one of the company’s largest data centers.

The amount of pre-leasing entering 2022 positions the Hillsboro market for long-term growth and a higher profile as a data center destination.

Business environment

Although Portland is considered a secondary data center market (especially compared to nearby large primary markets Seattle and Northern California), data center users increasingly find the market attractive. 

1.  Growing Economy The Portland economy continues to increase, with 3.3% annual employment growth. 
2. Growing Technology Sector Much of Portland’s economy comes from high-tech manufacturing and IT jobs. The Hillsboro sub-market also has business clusters of firms specializing in advanced manufacturing and biotechnology.
3. Heavy Data Center Tax Incentives Portland’s data center tax is the 2nd lowest in the United States. The tax incentives are available in Portland’s suburban “enterprise zones.” Oregon does not have a sales tax.
4. Lower Seismic Threat Compared to other West Coast markets, the seismic threat in the greater Portland area is relatively low.
5. Access to Subsea Cables Portland data centers have access to several trans-Pacific subsea cables, an option not available in competing markets in interior U.S. states. An ultra-high count fiber ring joins all the major local data centers and businesses, and serves as a cross connect for cables including FASTER, TPE, TGN, Hawaiki and New Cross Pacific that reduce latency to high-value Asia-Pacific markets.

Portland has an extensive fiber footprint available downtown and in its suburbs, due to heavy investment by Zayo, XO Communications, Windstream, CenturyLink, and Integra. Portland also lies upon several long-haul routes connecting the West Coast, from Vancouver to San Diego. Gigabit Ethernet connections are available downtown through CenturyLink.

Portland’s electricity costs are low, especially compared to other West Coast markets, such as Los Angeles and Silicon Valley. The primary power provider, Portland General Electric, generates power from diverse sources. A benefit of PGE is their abundance of hydroelectric power, with five owned hydroelectric plants, with an additional two plants jointly owned.

The Portland market is relatively safe, with a fairly stable climate. There is little risk of large, damaging storms, hurricanes, or tornados. As with most West Coast markets, Portland is at risk for earthquakes. Similar to Seattle, however, most earthquakes are non-damaging, with only three earthquakes recorded above a magnitude of 3.5.

Companies leverage Oregon’s lack of sales tax along with the property tax exemptions earmarked for companies that build in special tax havens called “Enterprise Zones” in Portland’s suburbs. Enterprise Zones in Beaverton, Hillsboro, and The Dalles spurred the building of massive data centers in the market. CBRE ranks Portland 2nd in the nation for tax incentives, with taxes representing only 2.7% of the data center project cost, far below the average 8.7%.

Top players/provider list  

• Digital Realty
• EdgeConnex
• Flexential
• NTT Global Data Centers Americas
• QTS Data Centers
• Stack Infrastructure
• T5 Data Centers
• VXCHNGE

Explore the Hillsboro data center market further through Data Center Frontier’s special report series and ongoing coverage of the growing colocation industry in a top data center market in the country, which can be found below.