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

The Northern Virginia Data Center Market is currently amid a data center building boom unlike any the industry has ever seen, according to an in-depth market report from Data Center Frontier and datacenterHawk.  As data center REITs and colocation providers compete to provide capacity for cloud services providers with big needs, the region is seeing an unprecedented surge in development and demand.

Northern Virginia is home to more than 100 data centers and more than 10 million square feet of data center space. As the cloud grows, having servers in the region has become the table stakes for companies with ambitions in cloud computing. The area is unique in its connectivity.

The region traces its connectivity roots back to to the U.S. Government’s early development of wide-area fiber optic networking in the late 1960s, and includes a variety of towns in Loudoun, Prince William and Fairfax counties. Much of the activity focuses on a fiber-rich area in Ashburn known as “Data Center Alley.”

As of September 2018, Northern Virginia was home to 4.7 million square feet of commissioned data center space, representing 955 megawatts of commissioned power. Demand remains very strong reflected in a vacancy rate of only 4.4 percent as of 2018.

In fact, the volume of data center capacity in the planning phase in the region has reached 1,097MW, or 1.1 gigawatts. These numbers reflect both new players entering the markets, as well as major expansions by experienced players.

2018: A Big Year for the Northern Virginia Data Center Market

Data center operators in Northern Virginia leased 270 megawatts of capacity in 2018, more than doubling the previous record for annual absorption, according to data from Jones Lang LaSalle, which said the region accounted for 55 percent of all data center leasing nationally.

That activity is accompanied by record valuations for land in Data Center Alley. The region’s colocation and wholesale data center providers don’t expect demand to slow anytime soon. In fact, the region is experiencing a surge in what is known as “land banking,” as developers buy up property to secure space for still more growth in the region in the future.

According to datacenterHawk, 157MW of commissioned data center capacity was either absorbed or pre-leased in Northern Virginia in just the second quarter of 2018. To put that into perspective, the number exceeds the annual industry record of 115MW for the entire year, a record that Northern Virginia hit in 2017. The area also was home to the largest deal in the history of the data center industry when a single tenant signed a pre-lease for 72MW of capacity with CloudHQ this year. This more than doubles the 35MW leased by the anchor customer in CloudHQ’s Manassas MCC1 project in 2016.

Why Northern Virginia?

Ashburn is the Internet’s boom town. It 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.

Why is Ashburn, which lies about 30 miles west of Washington in Loudoun County, such an important site? It was home to MAE-East, the Internet’s first major interconnection point. A startup called Equinix built its first data center in Ashburn in 1998, providing a “carrier-neutral” facility where companies’ networks could tap into Internet backbones. The Equinix campus quickly become the Web’s busiest meeting place, creating a powerful network effect in which each new connection adds to the value of its digital ecosystem.

Location is key for data center providers, and Northern Virginia offers a strategic, cost-effective market for companies needing their data center in the northeastern United States. There is also a relatively low threat for natural disaster, as other than occasional high winds and rain from hurricane remnants, the Northern Virginia market is typically very safe. Another key aspect drawing more and more data center providers to the region is affordable and reliable power costs, which are competitive among major colocation markets and reasonable considering the total cost of occupancy for long-term requirements. The primary power utility, Dominion Virginia Power, has a track record of reliable delivery for data centers.

And the region is simply ripe for business. Loudon County is the number one county in America for personal income, with an average household income reaching beyond six figures to $125,900, according to Census Bureau information. With an unemployment rate of 3.3 percent, and a sales tax exemption for data center customers that goes through 2035, it’s easy to see why the area is attracting the bigwigs of colocation.

Regional Data Center Trends to Watch 

Beyond regional trends in supply and demand, there are two specific trends surfacing in Ashburn, specifically. First, developers are building taller data centers to maximize the sellable space on each acre of land, and they are also buying offices or industrial properties and then demolishing existing structures to make way for data centers. These trends will work to influence the development and evolution of Data Center Alley in coming years. Those watching growth in the region will also have noticed developers are looking beyond Ashburn to Loudoun and Prince William counties.

As the largest data center market in the country, many of the trends that have gone on to shape the entire business originally stemmed from Northern Virginia. One emerging trend to watch is the widening gap between hyperscale and enterprise requirements, and whether this market segmentation prompts providers to focus on one of these niches or compete across all sectors.

As for trends in demand, Northern Virginia continues to be the “Home of the Hyperscalers”, touting the world’s largest concentration of cloud computing infrastructure. As cloud providers compete for clients and capacity, data centers will be the front line. As a result, the leading cloud computing players are working to amass capacity for the clouds of the future, which is ramping up demand in Northern Virginia and resulting in giant deals for data center space under development. Amazon Web Services, Facebook and Microsoft have always been focused on the region, but it is now also becoming a goal for expansion for companies like Google, Oracle, Salesforce and Chinese cloud providers, as well as data-driven companies like Uber, LinkedIn, Box and Dropbox.

This strong demand has largely redefined the scale of data center leasing, which  is surging past previous records. Prior to 2016, it was unusual to see a wholesale data center lease exceeding 10MW of capacity. This year, the 72MW deal by CloudHQ made the new high in the market. Also illustrating the leasing boom, in just 90 days — the second quarter of 2018 — the Northern Virginia data center market saw more leasing than it saw in 2016 (113MW) or 2017 (115MW).

That’s why developers are rushing to keep up with strong demand. This past year has been an active one for data center construction, as well as real estate transactions for future data center campuses. There is currently 58MW of data center capacity under construction in Northern Virginia. But the big names in colocation are playing the long game these days, so it’s important to look into the future when considering data center supply in the region. At the close of the second quarter of 2018, developers and service providers had announced plans for an impressive 1,097MW and almost 8 million square feet of data center projects. And that total will be far larger by end of year.

What’s driving this growth? According to Data Center Frontier’s latest report on Northern Virginia,  insatiable demand real-time news, sports, music and video—an ocean of data that will soon extend to virtual reality, self-driving cars and the Internet of Things (IoT). It will certainly be interesting to see this demand/supply balance play out as the major players in Northern Virginia seek room for expansion, while new players buy land to join the action in Ashburn.

The growth of the data center sector has been good for the region.

“This year in Loudoun County we will have a quarter billion dollars of tax revenue from data centers,” said Buddy Rizer, Executive Director of Economic Development. “Data centers are the engine of innovation. They enable a lot of other businesses.”

Biggest Colo Players in Northern Virginia

As for the biggest players in the Northern Virginia Data Center Market, it reads like a who’s who of cloud providers, data center leaders and colocation giants.

Below is an overview of major data center and colocation providers in the Northern Virginia data center market:

• Amazon Web Services
• AT&T
• Chirisa Tech Centers
• CloudHQ
• Cologix
• Compass Datacenters
• CoreSite
• Corporate Office Properties Trust
• CyrusOne
• Cyxtera
• Digital Realty
• Element Critical
• Equinix
• Infomart Data Centers
• Iron Mountain Data Centers
• Lincoln Rackhouse
• QTS Realty Trust
• RagingWire Data Centers
• Sabey Data Centers
• Sentinel Data Centers
• Vantage Data Centers
• zColo

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