Northern Virginia Data Center Demand: Home to the Hyperscalers

Your smarter solutions must come with intelligent security, built-in and ready out of the box. (Photo: RagingWire)

With the latest info on the always-growing Northern Virginia colocation market, we continue our series of stories on the leading geographic markets for data center space. Data Center Frontier is partnering with datacenterHawk to provide in-depth market reports on each city we profile. This time, we revisit the Northern Virginia Data Center Market, the home of the cloud. The second entry in our series offers an overview of significant transactions and Northern Virginia data center demand trends in 2018.

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Northern Virginia is the Home of the Hyperscalers, with the world’s largest concentration of cloud computing infrastructure. As the cloud computing arms race accelerates, the battle will be waged with data centers. The leading players are moving quickly to amass capacity for the clouds to come, resulting in huge deals for data center space under development.

The region has long been a strategic priority for Amazon Web Services, Facebook and Microsoft, and is now becoming a focus of expansion for Google, Oracle, Salesforce and Chinese cloud providers, as well as data-driven companies like Uber, LinkedIn, Box and Dropbox.

A 2014 study from Mangum Economics found that every dollar invested in data center incentives provides $9.50 in tax revenue to Loudoun County, and $4.30 to Prince William County.

This demand has redefined the scale of data center leasing. Prior to 2016, it was rare to see a wholesale data center lease exceeding 10MW of capacity. In 2016 a handful of tenants began seeking deals of 15 to 35MW. The high end of the market was reset this year with the 72MW deal by CloudHQ, which is building a new campus in Ashburn to accommodate the tenant.

That lease was part of a record 150MW of absorption and pre-leasing tracked by datacenterHawk in the second quarter of 2018. In just 90 days, the Northern Virginia market saw more leasing than it has in 2016 (113MW) or 2017 (115MW). Early indications are that leasing will also be strong for the third quarter.

The deal volume in Northern Virginia market is being accelerated by FOMO—the fear of missing out. As the appetite for data center space remains high, both users and developers are looking to play a longer game.

To accommodate larger requirements, developers are buying more land, and using hybrid lease strategies that enable cloud builders to reserve expansion space in strategic markets, while deploying capital on a pay-as-you-go-basis. This approach was used in two deals signed in the first quarter of 2018: a 36MW Digital Realty lease in Ashburn, and a 24MW build-to-suit project by QTS Data Centers in Manassas. In each case, the tenant leased the entire powered shell, and then signed a lease for the first phase of turn-key space within the shell. Subsequent phases will follow as the tenant requires more turn-key space.

Enterprise users have smaller requirements, but are also busy in the Ashburn market, including many customers seeking low-latency access to infrastructure operated by Amazon Web Services or Facebook. As hyperscale players lease entire buildings, this creates opportunities for landlords with multi-tenant facilities located nearby. Wholesale data center operators report no shortage of interest in 2 to 4MW requirements.

Northern Virginia is the Home of the Hyperscalers, with the world’s largest concentration of cloud computing infrastructure. (Photo: RagingWire Data Centers)

Another facet of some recent deal structures is capacity “portability” for tenants whose relationship with a provider spans multiple geographic markets. As global players seek flexibility on timing of cloud “availability zones” across their footprint, some providers are offering the option of shifting leased capacity between markets. For some providers, capacity in the most strategic markets—especially Ashburn and Santa Clara—can serve as incentives to craft larger deals and relationships. These trends in deal structure reflect the growing sophistication of data center users, as well as improved collaboration between tenants and landlords, who are working more closely together on matching space to needs.

Another area in which requirements have evolved is data center power design and the options for power delivery to the data hall. Service providers say that with the rise of distributed computing, clients are increasingly willing to look beyond the traditional Uptime Institute Tier-based model. The traditional 2N power redundancy is yielding to N+1, or even N for some applications.

Here’s an overview of significant transactions and demand trends in Northern Virginia in 2018:

A view of the roof of the new CloudHQ data center in Manassas, Virginia shows some of the 152 Kyoto Cooling units supporting the facility. (Photo: Rich Miller)

CloudHQ begins Ashburn development

CloudHQ recently secured its largest customer in 2Q 2018, which kicked off its Loudoun campus development in Ashburn. The 72MW facility will hold one of the largest data center leases completed in the industry and is split into two phases.

CyrusOne executes record leases

CyrusOne is underway with additional leasing in their initial Kincora data center, with the first four 60,000 SF data halls fully leased and additional preleasing completed on their next phase. In 2Q 2018, CyrusOne signed several large leases, contributing to one of their most successful periods of growth.

RagingWire leases third Ashburn data center

RagingWire had previously fully leased a total of 28.4MW at its VA1 and VA2 data centers in Ashburn, and recently fully leased its third facility—the 16MW, 245,000 SF VA3 data center, which just opened in April 2018. That brings RagingWire’s total to 44.4MW leased in Ashburn, plus it has preleased the first 2MW of its 250,000 SF VA4 facility, which is under construction and will be VA3’s neighbor on RagingWire’s 78-acre, fenced Ashburn Data Center Campus.

Active leasing for Digital Realty

Digital Realty has 63MW of new capacity under construction in Ashburn, and says it has pre-leased 87 percent of the new space, representing about 55MW of leasing. Digital Realty executives say they have leased 100MW of space in Ashburn over the last 12 months.

The region has long been a strategic priority for Amazon Web Services, Facebook and Microsoft, and is now becoming a focus of expansion for Google, Oracle, Salesforce and Chinese cloud providers, as well as data-driven companies like Uber, LinkedIn, Box and Dropbox.

Growth at Amazon Web Services, as reflected in these facilities under construction in Virginia, continues to make headlines. (Photo: Rich Miller)

COPT leases two entire buildings

In 2Q 2018, Corporate Office Properties Trust reported that it had fully leased two 216,000 SF build-to-suit data center shells in Northern Virginia. The likely occupant is Amazon Web Services, which is one of COPT’s largest tenants.

Northstar Enters Market with Fortune 50 Tenant

A new entry in Ashburn is Northstar Commercial Partners, which has pre-leased two data center shells with more than 400,000 SF of space to a Fortune 20 company, most likely Amazon Web Services.

Sentinel Lines Up Anchor Tenant

Sentinel Data Centers has secured a 40MW pre-lease on a new campus it is creating on 65 acres of land next to the original AOL campus near Route 28. Development on the site began in 2Q. Collectively, these factors suggest robust demand for data center space in Northern Virginia going forward. Several recent reports from real estate companies tracking the market note that data center supply has closely tracked demand in Northern Virginia for the last five years, even as deals have increased in size.

The latest Data Center Frontier series on the Northern Virginia Data Center Market will also cover the following topics for the region in the coming weeks: