The Home of the Cloud: Rapid Growth Continues in Northern Virginia

The Northern Virginia data center market is the largest in the world and its rapid growth has transformed the local real estate market. This launches our special report series on the Northern Virginia Data Center Market.

Northern Virginia is the epicenter of digital infrastructure in North America, and the favorite data center location for hyperscale operators seeking capacity to power cloud computing platforms and social networks.

The region is one of biggest success stories of the Internet economy, with the rapid growth of the data center industry transforming real estate markets and the local tax base.

The Northern Virginia data center market is spread across a number of towns in Loudoun, Prince William and Fairfax counties, and shows signs of expanding into adjacent counties. At the heart of the region’s geography and success is Ashburn, which has become known as Data Center Alley for its concentration of mission-critical facilities.

Ashburn sits atop the world’s densest intersection of fiber networks, making it an ideal location to store and distribute data. It is unique in its connectivity, and its data centers are laying the physical foundation of the digital economy.

Northern Virginia continues to be largest market for data center space in the U.S. and is home to 11.9 million square feet (SF) of commissioned multi-tenant data center space, representing 1,920 megawatts (MW) of commissioned power, according to market research from datacenterHawk. Demand for space is very strong, as reflected in the vacancy rate of just 1.28 percent in the region.

Northern Virginia has seen unprecedented levels of data center leasing, record valuations for land in Data Center Alley, and a surge in land banking as developers seek to lock down space for future expansion in this region, which has strategic importance for enterprise customers, as well as hyperscale players. Northern Virginia continues to see demand for traditional colocation space for enterprises, content companies, IT integrators and government agencies.

The latest numbers on market growth are extraordinary even by historical standards. Here are some data points:

According to datacenterHawk, 237MW of commissioned data center capacity was either absorbed or pre-leased in NoVa in the fourth quarter of 2021, easily exceeding the industry record of 115MW for an entire year — which was established in 2017 in Northern Virginia .

The volume of data center capacity in the planning phase in Northern Virginia has reached 4,022MW—that’s over 4 gigawatts (GW). This is partially driven by new players entering the market, but also includes major expansions by experienced players.

The Expanding Northern Virginia Market

Northern Virginia is the world’s largest data center market. This extremely mature and well-connected area traces its roots to the U.S. Government’s experiments in wide area fiber optic networking in the late 1960s. The low-latency connections to the national fiber network backbone along with a relatively business- friendly environment make NoVa the top market for data centers serving the area’s biggest public and private enterprises.

Over 70 firms with annual revenue over $500 million are headquartered in Virginia with eight of the nineteen of the Fortune 500 companies in Virginia headquartered in the NoVa area.

NoVa is the home of the cloud for a number of following reasons:

1. Competitive Colocation/Cloud Environment – Northern Virginia has the largest presence of colocation and cloud providers in the U.S., creating a very competitive environment.
2. Strategic Location – The Northern Virginia market provides a strategic, cost-effective market for companies needing their data center in the northeastern U.S.
3. Relatively Free of Natural Disasters – Other than occasional high winds and rain from hurricane remnants, the Northern Virginia market is typically very safe.
4. Reasonable Power Cost – Northern Virginia ’s power costs are competitive among major colocation markets and is reasonable considering the total cost of occupancy for long-term requirements.
5. Business Climate – Despite some economic challenges in Virginia over the past few years, the area’s businesses continue to grow, creating data center requirements for the market.

The Virginian economy is diverse, with both a strong manufacturing base (producing everything from wood flooring to rocket engines) and information services sector. Over 70 firms with annual revenue over $500 million are headquartered in Virginia with eight of the nineteen of the Fortune 500 companies in Virginia headquartered in the Northern Virginia area. Since 2018, nearly $2 billion was spent on land purchases for data center development in Northern Virginia.

While the downtown Washington, DC area has several smaller data centers, the bulk of data center investment occurs outside of the downtown area. Concentrations of colocation, cloud, and enterprise data centers are located in several cities to the northwest corner of the market, including Ashburn, Sterling, and Reston, VA.

The Ashburn area (a suburb north of Dulles Airport so dense it is commonly referred to as Data Center Alley) is dominated by a number of large data center providers. It is home to multiple large campuses owned and operated by Digital Realty, which is the largest provider in the market and positioned for long-term growth in the region. Digital Realty has developed two massive data center campuses, and in 2017 it acquired a third large campus with its acquisition of DuPont Fabros Technology.

Equinix is also a key player in the Northern Virginia data center ecosystem, operating a key regional connectivity hub on its campus in Data Center Alley. Equinix operates 14 data centers in the area, and has secured land in the area to continue to expand.

Approximately one mile to the southeast is Sterling, an area with a growing number of data center providers. Digital Realty, CyrusOne, Cyxtera, and Stack Infrastructure are well positioned to be competitive in this area for the immediate future. Reston continues to grow as well, with significant investments from CoreSite, Digital Realty, and Equinix.

The strong demand for data center space in Northern Virginia , along with the dwindling supply of development parcels, has led to the emergence of several regional sub-markets beyond the core of Data Center Alley in Ashburn. These include:

• The Dulles Cloud Corridor – The area surrounding Dulles Airport is the new frontier for data center development, home to campuses for Amazon Web Services, Google, and Microsoft in Arcola. Digital Realty plans its largest campus here, and AWS has been aggressively acquiring sites around all sides of Dulles Airport.
• The Leesburg Cluster – A Google data center is the largest facility here, but it has company in a Compass Datacenters campus. Microsoft and TA Realty plan large projects in the area.
• Prince William County – The Manassas area is becoming a focal point for developers seeking large properties for long-term growth. AWS operates multiple campuses in the region, and CloudHQ, Iron Mountain, QTS, STACK Infrastructure all have campuses. Corscale and Yondr Group are new entries with plans for large campuses near Manassas, while a group of homeowners have banded together to market the Prince William Digital Gateway, a controversial data center district that could support up to 21 million square feet of new data center development.

While government agency requirements have increased the data center demand in NoVa, the majority of the market is made up of other industries finding the market attractive. Aerospace, financial, managed hosting, technology, and telecommunications companies have all staked claims NoVa’s data centers. Colocation requirements in the NoVa market are typically larger than most markets. This is due to the nature of the requirements, as well as the availability and competitive pricing in the market.

Download the full report, Northern Virginia Data Center Market, courtesy of Digital Realty, to learn more about this competitive data center market. In our next article, we’ll look at the market’s history and key market updates.