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

We continue our series of stories on the leading geographic markets for data center space with a report on the Silicon Valley Data Center Market. Data Center Frontier is partnering with DatacenterHawk to provide in-depth market reports on each city we profile. This post 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 lies south of San Francisco, extending roughly from Palo Alto southward to San Jose. It includes the Santa Clara Valley, which was once rich farmland but has emerged as fertile territory for technology innovation, including the silicon chips that gave the region its name. 

In the 1990s, the Valley’s tech companies focused on the Internet, creating a need for data facilities to house servers for websites and applications. Early activity was concentrated in multi-tenant “carrier hotels” that housed dozens of service providers and websites, including the Palo Alto Internet Exchange (PAIX) and the Market Post Tower in Downtown San Jose. 

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. 

Data center requirements in Silicon Valley typically originate from companies already located in the region, often representing the primary West Coast footprint for larger web infrastructures. In many cases, companies see data center space in Silicon Valley as a strategic imperative that outweighs other factors, similar to the attraction of Manhattan or downtown Chicago. 

In theory, companies objectively evaluating the market for expansion should be deterred by the area’s expensive real estate, power costs and risk of earthquakes. In reality, Silicon Valley has seen consistent activity from large data center users and colocation/cloud operators over the last five years. Companies seeking space in Silicon Valley have clearly found a comfort level with the cost environment and earthquake risk (which nonetheless is a common emphasis of data center providers in rival markets like Phoenix, Las Vegas, Reno and Sacramento). 

Providers in Silicon Valley compete with several other markets. Hyperscale companies often weigh options in both Santa Clara and the Pacific Northwest, which offers cheaper land and power and a favorable climate for using outside air for cooling. It’s important to note that several cloud providers deploy capacity in both regions. Companies that are risk-sensitive may weigh options in Silicon Valley alongside providers in Phoenix or Las Vegas, which offer low disaster risk; or Sacramento, which offers a combination.

Here’s a look at the trends in the Silicon Valley/Northern California market, measured in square feet of space: 

The next article in this four-part series, will explore demand and supply trends in the Silicon Valley data center market.

And don’t miss the first post in the latest Silicon Valley data center market series, available here.

For full details on the Silicon Valley data center market, we invite you to download the Data Center Frontier Special Report: The Silicon Valley Data Center Market, sponsored Vantage Data Centers.