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Silicon Valley Data Center Market Accelerates Growth Amid AI Boom

By Rich Miller - August 27, 2020 Leave a Comment

Silicon Valley Data Center Market Accelerates Growth Amid AI Boom

The V2 facility at the Vantage Data Centers campus in Santa Clara, Calif. (Photo: Vantage Data Centers)

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Silicon Valley is one of the largest and most important data center markets in the U.S. , and has entered a new phase of acceleration and competition, and is positioned for its strongest growth in years.

Silicon Valley data center market

Download the 2019 Special Report on the Silicon Valley Data Center Market.

Silicon Valley, which lies south of San Francisco extending roughly from Palo Alto southward to San Jose,  includes the Santa Clara Valley, which is known as prime territory for  innovation and new tech developments. The dot-com boom helped define a new industry of colocation providers and hosting companies, who began building their own data center facilities around Silicon Valley years ago.

And now, a steady stream of new providers, and a robust cycle of new construction,  is continuing to push colocation growth. The cloud computing boom initially played a role in this trend, creating even stronger demand for data centers in past years, and putting more focus on highly connected areas like Silicon Valley.

The region is already home to some of America’s leading tech players, including Apple, Google, Facebook, Intel, Cisco, Oracle and many others.

Interestingly, more data-heavy businesses have looked to Silicon Valley, even as power costs, cost of development sites for Silicon Valley, and land availability in general, puts a damper on  data center capacity. 

Santa Clara boasts more than 40 data centers located in 18 square miles, rivaling “Data Center Alley” in Northern Virginia as the world’s largest concentration of data centers. The ongoing interest in Silicon Valley is demonstrated in the recent news that data center developer EdgeConneX has bought several properties in Santa Clara for future data center use.

Let’s look at the details. As of 2019, the Silicon Valley Data Center Market was home to 2.9 million square feet (SF) of commissioned data center space, representing 411 megawatts (MW) of commissioned power, according to market research from datacenterHawk. There was 498 MW of new capacity planned, up from just 104 MW at the start of 2018.

Some of that capacity has begun to be leased and come online, most notably the newest Vantage Data Centers facility known as CA-21, where the company leased 21 megawatts of capacity. CoreSite executed pre-leasing of Phases 1 and 2 at its SV8 project, representing 108,000 square feet of space.

Other projects remain in the development pipeline, including projects from new market entrants like RagingWire Data Centers, CyrusOne and EdgeCore Internet Real Estate, as well as new construction from Digital Realty, STACK Infrastructure and CoreSite.

So why does Silicon Valley remain one of America’s busiest markets for data center space, despite expensive land, comparatively high cost of power and the risk of earthquakes? Proximity to corporations and Internet consumers are major factors.

Santa Clara has become the region’s primary data center hub, due to its lower cost of electric power. Although land is hard to find in the region, developers have found ways around the challenge. Rather than building on open land in other towns, developers have paid more to acquire properties in Santa Clara with existing buildings that must be torn down and redeveloped.

Can Silicon Valley Colo Supply Meet Demand?

Strong activity in both retail colocation and wholesale data center space has spurred the Silicon Valley data center market along. And tenants in the area use this space for a variety of purposes, including corporate IT, research labs and high-performance computing — and cloud deployments.

silicon valley data centers

The Stack Infrastructure campus in San Jose, California; (Source: Stack Infrastructure)

That said, space remains limited, and over the past several years, the limited supply of new wholesale space in Silicon Valley has led to strong leasing and pre-leasing activity.

Will that trend hold true as additional new inventory becomes available from multiple new projects? That depends. But keep in mind; the lead time for procuring a site and building space in Santa Clara is an important factor for cloud players, who seek to deploy capacity in 6 to 9 months in other markets. This reality might just lead to early commitments from customers with short-term requirements.

One thing is for sure, the Silicon Valley remains an important destination for hyperscale cloud providers, as Amazon, Microsoft and Apple, continue leasing wholesale space in Santa Clara, even as they look to expand their facilities into the Pacific Northwest.

But with a vacancy rate of around 8 percent, large footprints are scarce in Silicon Valley. In fact, the market has absorbed 35 to 40 megawatts of demand annually in recent years. And the vacancy rate for available space has remained low, as seen in the chart below from datacenterHawk.

Silicon Valley vacancy

The newest demand driver in the Silicon Valley region is the growing adoption of artificial intelligence, which is accelerating the need for high-density computing and surrounding services.

Power Pricing & Competitive Factors in the Valley

Power pricing often guides competition in Silicon Valley, where the average power costs range from 9 to 15 cents per kilowatt hour (kWh) — significantly higher than competing data center markets.

Santa Clara is top of mind for most in this market due to lower power pricing costs from the municipal utility, Silicon Valley Power. The utility’s rates average a significant 25 to 40%  lower than the cost of power from PG&E in surrounding towns. For the utility’s industrial customers, this equates to a 22-percent drop from the average for PG&E in surrounding towns.

Power is usually a more important cost factor than land in the total cost of building and operating a data center, and Santa Clara will likely remain the nexus of activity in Silicon Valley for years to come.

As far as challenges in the area beyond power cost, think disaster risk. Beyond the California market being a prime earthquake risk, one of the biggest concerns of late are wildfires — a front-of-mind issue after the extensive loss of life and property in recent wildfires. Another challenge for the Northern California data center market is the availability of water, as many facilities need large amounts of water to cool their equipment.

Frontier Spotlight march 2018

There is currently a limited supply of data center space in Silicon Valley, which has prompted several companies to undertake construction projects to bring additional capacity online. (Photo: Vantage Data Centers)

For connectivity in the area,  legacy carriers AT&T, Sprint and Verizon all run long-haul fiber connections on the west side of San Francisco Bay. These fast connections to the Internet backbone work to connect tech businesses from San Francisco in the north to the concentrations of data centers south of the Bay in Santa Clara and San Jose.

Fiber from newer carriers CenturyLink, Cogent, Electric Lightwave, Integra, Level3, M Power, Paxio, Telepacific, XO Communications and Zayo all follow similar paths but also add connections to east Bay Area-suburbs of Berkeley and Oakland in the north, out to the growing eastern suburbs of Dublin, Pleasanton and Livermore, and circle back southwest to link up to San Jose/Santa Clara.

Municipal fiber is available in Palo Alto, Sun Bruno (just south of San Francisco proper) and San Leandro, while Wilcon and Northern California Fiber serve the data center-heavy areas in Santa Clara and San Jose.

The Biggest Colo Players in Northern California

As for the biggest players in the Silicon Valley Data Center Market, here’s a look at the data center providers that operate two or more facilities in the Silicon Valley market, presented alphabetically:

  • CoreSite: Located at 55 South Market Street, CoreSite’s SV1 data center is a 15-story carrier hotel building in San Jose and has commissioned multiple data halls inside the over 309,000 SF interior.
  • Cyxtera: Cyxtera operates six data centers in the Northern California market.
  • Digital Realty: DLR’s largest concentration of data centers in Northern California is in Santa Clara, where it owns or operates 17 facilities.
  • Equinix: Equinix operates four data centers in San Jose.
  • INAP: INAP operates two Northern California data centers in the Santa Clara cluster to serve Silicon Valley businesses.
  • QTS Realty Trust: QTS operates two fully-occupied data centers at 2805 and 2807 Mission College Boulevard in Santa Clara.
  • RagingWire: In 4Q 2017, RagingWire purchased a 3-acre site in Santa Clara at 1150 Walsh Avenue.
  • Stack Infrastructure: The company’s San Jose data center is the original “Fortune Data Center” location. The two-story building features 9.3 MW commissioned power and 41,000 SF of data center space. The space can be divided into multiple data halls with 1.1 MW/10,000 SF available.
  • Vantage Data Centers: Vantage’s flagship Silicon Valley campus in Santa Clara includes six data centers totaling 75 megawatts (MW) of critical IT load.

Other providers with one facility in the Valley include:

  • Colovore
  • EdgeConnex
  • Element Critical
  • Evocative
  • H5 Data Centers
  • vXchnge

Explore the  Silicon Valley Data Center Market further through Data Center Frontier’s special report series and ongoing coverage on one of the largest and most important data center markets in the U.S., which can be found below.

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Tagged With: Silicon Valley data center market, Vantage Data Centers

About Rich Miller

I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

Special Report Article Series

The lights of Silicon Valley at night. (Photo: Rich Miller)

Fiber Connectivity Benefits Silicon Valley Data Center Market

September 13, 2019 By Rich Miller

Within the Silicon Valley market, Santa Clara has emerged as the prime location due to power pricing from the municipal utility, Silicon Valley Power. This post, part of a new Data Center Frontier Special Report, takes a look at the current business environment in Silicon Valley for data centers, including disaster risk, power cost, incentives and more.

The V6 data center is the newest building at the Vantage Data Centers campus in Santa Clara. (Photo: Rich Miller)

New Projects Help Address Growing Silicon Valley Data Center Demand

September 5, 2019 By Rich Miller

Silicon Valley is a market of markets, with strong activity in both retail colocation and wholesale data center space. This entry in a new Data Center Frontier special report dissects trends in Silicon Valley data center market demand and supply. 

Silicon Valley data center market

Companies see Silicon Valley Data Center Space as ‘Strategic Imperative’

August 13, 2019 By Rich Miller

Silicon Valley has seen consistent activity from large data center users and colocation/cloud operators over the last five years. This post from a new Special Report explores the history and market position of Silicon Valley in the data center market, and why Silicon Valley data center space is top of mind for today’s enterprises.

silicon valley data center market

Silicon Valley Data Center Market Sees Robust Leasing Activity

July 16, 2019 By Rich Miller

The Silicon Valley data center market is entering a dynamic new phase of growth and competition, featuring new providers and a robust cycle of new construction. A new special report outlines what sets the second largest data center market in the U.S. apart.

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The NTT Global Data Centers Americas SV1 facility in Santa Clara, Calif. (Image: NTT)

NTT Global Continues Expansion With New Santa Clara Data Center

April 13, 2021 By Rich Miller

NTT Global Data Centers Americas has opened its SV1 data center in Santa Clara, which is the company’s first presence in the supply-constrained Silicon Valley market. The facility features a base isolation system to provide advanced protection against earthquakes.

An illustration of the new four-story data center in Santa Clara planned by Digital Realty, which is partnering with developer Pelio & Associates. (Image: Digital Realty)

Digital Realty Plans New Data Center Project in Santa Clara

February 4, 2021 By Rich Miller

Digital Realty plans to build a four-story, 430,000-square-foot data center in Santa Clara, providing additional room for customer growth in the strategic Silicon Valley technology market.

An illustration of the planned Prime Data Centers facility in Santa Clara. (Image: Prime)

Prime Data Centers Plans Four-Story Project in Santa Clara

October 21, 2020 By Rich Miller

Wholesale data center developer Prime Data Centers will enter the Silicon Valley market with a project in Santa Clara, the company said this week.

The Vantage V5 data center in Santa Clara, Calif. (Photo: Rich Miller)

Vantage Expanding Campuses in Northern Virginia, Silicon Valley

September 17, 2020 By Rich Miller

Vantage Data Centers is continuing its global expansion by adding capacity in the two largest U.S. markets, Northern Virginia and Silicon Valley. Both markets are seeing strong customer demand, with developers working steadily to provide inventory to keep pace.

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Silicon Valley Data Center Market Report: A New Phase of Growth on Horizon

The Silicon Valley data center market is entering a dynamic new phase of growth and competition, featuring new providers and a robust cycle of new construction. Silicon Valley continues to be one of the largest and most important data center markets in the U.S. Download the new Data Center Frontier special report that explores new construction in the pipeline in the Silicon Valley data center market and more. 

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Silicon Valley Data Center Market Report: A New Phase of Growth on Horizon

The Silicon Valley data center market is entering a dynamic new phase of growth and competition, featuring new providers and a robust cycle of new construction. Silicon Valley continues to be one of the largest and most important data center markets in the U.S. Download the new Data Center Frontier special report that explores new construction in the pipeline in the Silicon Valley data center market and more. 

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