• 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 / Voices of the Industry / How the West Was ‘Tier 1’

How the West Was ‘Tier 1’

By Voices of the Industry - November 9, 2020 Leave a Comment

How the West Was ‘Tier 1’

Aligned Salt Lake City. (Graphic: Aligned)

LinkedinTwitterFacebookSubscribe
Mail

Andrew Schaap, CEO at Aligned, takes a deep dive into Tier 1 cities for data center development, and how the evolution of Tier 1, 2, and 3 locations is changing the market. 

tier 1

Andrew Schaap, CEO, Aligned

As businesses worldwide accelerate their digital transformation initiatives, data center development today is fundamentally different and far more sophisticated in nature than it was during the dot-com boom era. At that time, the main driver for data center site location was connectivity, and the building between 1999 and 2002 was focused primarily on the major internet markets, especially New York, Northern Virginia, Silicon Valley, Chicago and Dallas, where a critical mass of customers and fiber resided. In time, data center providers expanded their facilities across the U.S. in so-called Tier 1, or “NFL” cities.

Today, however, it’s not only Tier 1 cities that are driving the digital economy, but Tier 2 and Tier 3 locations. Yes, the core markets will always be the core markets, but there are tremendous opportunities for data center growth in emerging markets, and not just in the U.S., but also in Europe and LATAM. Interestingly enough, the population base of Tier 2 markets in Europe is generally smaller than Tier 1 markets individually, but many are close to Tier 1 markets in data usage, economic activity and geographic size. Moreover, there are 124 Tier 2 cities in Europe that make up nearly 80% of the entire continent’s metropolitan urban population.

This is noteworthy because a similar trend has emerged in the U.S., as a recent study by Redfin predicts that the expansion of the remote workforce in the wake of the pandemic will drive a seismic demographic shift toward smaller American cities. One of every two respondents surveyed stated that they would consider moving out of large metro areas if they were able to work remotely all the time.

The New Guns in the Data Center Market

Undoubtedly, the global health crisis is contributing to a shift in the data center industry from core markets to sites that may have been considered Tier 2 or Tier 3 only a short time ago, and coinciding with the rise in demand of online services, including streaming content, video conferencing and cloud collaboration platforms, social media and online gaming. Just three to four years ago, for example, Salt Lake City was considered a Tier 2, perhaps even a Tier 3 market. Today, we’re witnessing a flurry of large enterprises and hyperscalers deploying infrastructure there. Because of the spike in demand for online services and the impact of latency in the region, it’s no longer realistic to serve the Salt Lake City market from Los Angeles.

Known as the Silicon Slopes, the Salt Lake City area is a growing technology hub with extensive fiber infrastructure and some of the fastest internet speeds in the Intermountain West. As a desirable colocation market, the State of Utah enjoys some of the lowest electricity and natural gas rates in the nation, and renewable energy sources such as solar and wind are also rapidly growing. Additionally, Utah is classified as a cold desert; hence, its low humidity levels enable data centers to employ ambient cooling techniques, reducing cooling costs.

But the main reason why Salt Lake City is an attractive data center market is that it offers some of best tax incentives in the country. In Utah, qualified data center owners, operators and customers are exempt from sales tax on purchases of data center equipment with an economic life of at least one year that is used in their operations. These flexible tax incentives do not call for specific requirements around lease term, provisioned capacity, capital investment or job creation. Overall, Utah is aggressively pro-business, with a corporate income tax rate of only 4.95%. While no one can predict the future, the rate at which companies are expanding and digitalizing services to meet the rising demand from their own customers will require data center providers to be extremely nimble in building, solving problems and scaling.

Especially as compared to the West Coast and Pacific Northwest data center markets such as Santa Clara and Hillsboro, Salt Lake City is neither overly saturated nor cost prohibitive. Not only is there room for new data center builds and expansions, but Salt Lake does not suffer from the soaring land values prevalent in Santa Clara area, nor the region’s unfortunate risk factors that include climate exposure and water scarcity, traits it shares with Hillsboro.

Salt Lake City also possesses a highly capable workforce. A U.S. News & World Report study found that Utah has the second most educated population in the nation. The city’s quality of life and cultural richness are renown, and within a short drive, the world class skiing and snowboarding isn’t bad either.

In fact, given the growth trends — including Facebook’s Eagle Mountain data center as well as the launch of Google Cloud Platform in the region, which provides customers added flexibility to distribute their workloads across the Western U.S., including existing cloud regions in Los Angeles and Oregon — it’s reasonable to anticipate that the Salt Lake City data center market may even double in size over the next 24 to 36 months. Indeed, there are several other Tier 2 and Tier 3 markets across the country with similar growth trajectories, including Denver, and Reno, Nevada, which in time will likely follow this same arc.

While no one can predict the future, the rate at which companies are expanding and digitalizing services to meet the rising demand from their own customers will require data center providers to be extremely nimble in building, solving problems and scaling. Hyperscalers and large enterprises present a sophisticated clientele, and in some cases, these customers have already sourced their land, power and even alternative energy sources in advance of their strategic expansions.

Serving these types of companies might call for a more flexible deal structure, or identifying unique markets or regions that might not be so obvious today, but will become critical in the near future. Just take a look at Phoenix, a market that is now witnessing a tremendous amount of activity and which one could argue is on the cusp of becoming Tier 1.

To meet the demands of organizations’ accelerated digital transformation and expansion in Tier 2 and Tier 3 markets also necessitates access to stable capital and a standardized supply chain. While the West may have once been predominantly Tier 1, Tier 2 and Tier 3 cities are fast becoming the new guns in the global data center market, both domestically and abroad. Hence, working with the right design and build partner that can help companies cost-effectively scale with the requisite speed-to-market needed to thrive and remain competitive has never been more critical.

Andrew Schaap is the CEO at Aligned .

LinkedinTwitterFacebookSubscribe
Mail

Tagged With: Aligned Energy, Data Center Site Selection, Pacific Northwest, tier 1

Newsletters

Stay informed: Get our weekly updates!

Are you a new reader? Follow Data Center Frontier on Twitter or Facebook.
voices@richmiller.biz'

About Voices of the Industry

Our Voice of the Industry feature showcases guest articles on thought leadership from sponsors of Data Center Frontier. For more information, see our Voices of the Industry description and guidelines..

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

Making Your Data Center Water Positive

Making Your Data Center Water Positive Cem Candir, CEO of Chemstar WATER, provides insights on new innovations in data center water treatment and gives details on how some hyperscalers are making their data centers water positive.

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

busway

Busway: Safety and Reliability

Since its introduction within the automotive industry in the 1930’s through to its current widespread use in data centers, busway offers a high density, flexible power distribution solution for many applications. Get the new report from Anord Mardix that explores a fresh approach — integral coupling — which utilizes a unique male and female coupling system that is integral to the individual busway sections.

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

  • Senior Electrical Engineer - Data Center Design Build - Denver, CO
  • Senior Mechanical Engineer - Data Center Design Build - Denver, CO
  • Electrical Commissioning Engineer - Aurora, IL
  • Electrical Commissioning Engineer - Ashburn, VA
  • Electrical QA / QC Specialist - Data Center - Baskerville, VA

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
  • White Paper

Copyright Data Center Frontier LLC © 2021