2011 Data Center Summary

Issues Most Impacting Data Centers During 2011

  • Reid McConnell Tax Act increased the number of companies spending their own capital to build out space as an alternative to turn-key data center solutions.
  • Due to increased competition,wholesale pricing is flat on a national basis. Downward pressure on pricing is more likely operator specific than market specific.
  • The increased number of developers / operators has provided additional models. Increased flexibility by developers provides tenants greater opportunities to build their desired density. Furthermore,overly dense models (200 watts/sf) will take longer to lease up in certain markets (e.g.,  Chicago,New York).
  • Wholesale speculative construction costs are down between 15-20 percent due to economies of scale and off-site modular construction.
  • Significant uptick in leasing activity between 400 kW and 600 kW users. This has further blurred the lines between wholesale &colocation.

Strongest Markets For Wholesale Leasing Activity During 2011

  • Santa Clara
  • Suburban Chicago

Largest Wholesale Turn Key Transactions Leases Year To Date

  • Zynga                           9 MW           Santa Clara,CA
  • Twitter                          8 MW           Atlanta,GA
  • RackSpace                   7.9 MW           Elk Grove Village,IL
  • Telx                              6 MW           Santa Clara,CA
  • Savvis                        4.5 MW           Santa Clara,CA
  • Equinix                        4.5 MW           Seattle,WA
  • Softlayer                     3.4 MW           Santa Clara,CA
  • Server Central                 3 MW           Elk Grove Village,IL
  • Salesforce                   2.6 MW           Elk Grove Village,IL
  • Apple                        2.28 MW           Santa Clara,CA
  • Salesforce                2.275 MW           Ashburn,VA

Largest Build To Suits/Power Based Building (PBB)

  • Facebook,Phs II         300,000 sf        Forest City,NC
  • Time Warner              178,000 sf        Charlotte,NC
  • Chevron                   150,000 sf        San Antonio,TX
  • Boeing                     133,000 sf        Quincy,WA
  • Amazon                   120,000 sf        Boardman,OR
  • Disney                     100,000 sf        Kings Mountain,NC
  • Adobe                      100,000 sf        Hillsboro,OR
  • Equinix                      77,000 sf        Ashburn,VA
  • NetApp                      55,000 sf        Hillsboro,OR
  • Umpqua Bank             41,800 sf        Hillsboro,OR
  • Walgreens (PBB)              4 MW        Northlake,IL

Largest Blocks of Wholesale Space Available For Immediate Occupancy

  • CyrusOne                        60,000 sf (20 MW)        Houston,TX
  • CyrusOne                        41,000 sf (20 MW)        Austin,TX
  • DuPont Fabros               44,000 sf (14.1 MW)        Santa Clara,CA
  • DuPont Fabros                  60,000 sf (12 MW)        Piscataway,NJ
  • DuPont Fabros                  60,000 sf (12 MW)        Ashburn,VA
  • Powerloft                           50,000 sf (9 MW)        Manassas,VA
  • CoreSite                         45,715 sf (8.5 MW)        Santa Clara,CA
  • Benaroya                       50,000 sf (7.5 MW)        Puyallup,WA
  • DuPont  Fabros               31,900 sf (5.3 MW)        Elk Grove Village,IL
  • T5                                  54,319 sf (6 MW)        Atlanta,GA
  • Quality Technology            50,000 sf (5 MW)        Atlanta,GA
  • Digital Realty Trust          28,254 sf (3.8 MW)        Chandler,AZ
  • Sentinel                          20,000 sf (3.5 MW)        Somerset,NJ
  • CyrusOne                        25,000 sf (2.2 MW)        Dallas,TX

Largest New Wholesale/Colocation Facilities Announced During 2011

  • CyrusOne                          TBD (110 MW)        Phoenix,AZ
  • Sabey                                        40 MW        Manhattan,NY
  • i/o (PBB)                   831,000 sf (30 MW)        Edison,NJ
  • Telx                           215,000 sf (28 MW)        Clifton,NJ
  • T5                          206,000 sf (16.65MW)        El Segundo,CA
  • RagingWire                70,000 sf (14.4 MW)        Ashburn,VA
  • Latisys                         82,000 sf (14 MW)        Englewood,CO
  • Data Gryd                 120,000 sf (12.5 MW)        Manhattan,NY
  • T5                           150,000 sf (10.5 MW)        Dallas,TX
  • Equinix (PBB)              125,000 sf (10 MW)        Ashburn,VA
  • Fortune                     240,000 sf (7.8 MW)        Hillsboro,OR
  • Savvis                            70,000 sf (6 MW)        Piscataway,NJ
  • XO Comm. (PBB)              49,000 sf (3 MW)        Manhattan,NY
  • CyrusOne                                  45,000 sf        Dallas,TX
  • Terremark                                 30,000 sf        Santa Clara,CA
  • Sabey                                              TBD        Ashburn,VA

2011 Investment Activity

  • Verizon purchased Terremark for $1.4 B.
  • Hines Global REIT purchased Fisher Plaza for $160 M. It is an office,data center and retail campus.DLR bought a 69,000-square-foot SunGard facility in Rancho Cordova,CA for $30 M or a 9 percent capitalization rate.
  • Carter Validus purchased a single tenant leased data center in Richardson,TX for $28.9 M or a 8.5 percent capitalization rate.
  • In a distressed 100,000-square-foot sale,601 W. Polk Street in Chicago sold to Pi Data Holdings for $10 M.
  • Carter Validus is under contract to purchase 180 Peachtree in Atlanta,GA for $94.75 M. The 338,000-square-foot property is expected to close at an 8.2 percent capitalization rate.
  • Sabey purchased 375 Pearl  St. in for $120 M.
  • DLR purchased the Red Sea Portfolio (AT&T -900 Dorothy,Richardson,TX and Verizon -2950 Zanker,San Jose,CA)  for $50.3 M.
  • CyrusOne purchased its leased facility at 5150 Westway Park Blvd.,Houston,TX.
  • There were three power based shells that sold this year.
Due to the confidential nature of this business,it is virtually impossible to reflect the accuracy of  all the aforementioned information,but it is from sources deemed reliable.
For the largest wholesale transactions,the numbers set forth represent what is believed to be the total commitment of the lease agreement. The build-to-suit/new wholesale transaction size by and large part represents the total size of the shell not necessarily the technical space. This is further complicated by the multiple phases of the projects and/or the total power committed to the project versus initial build out.

Turkey,Data Centers and Dallas

National Highlights

  • Demand continues to outpace supply, primarily by users looking for 700 KW – 1.5 MW (5,000 – 10,000 square feet).
  • In the non-wholesale market (under 500 KW);colocation deals are reaching $350/KW all in.

Spotlight:Dallas

  • Overall pricing has remained consistent since our last Dallas newsletter, as rental rates range between $125-170/KW NNN for wholesale PODs.
  • Stream Data Centers is under construction on Richardson II project and will deliver 20,000 square feet of commissioned raised floor in May 2012.  There will initially be 2.2 MW of critical load,expandable to 30,000 square feet of raised floor and 6.6 MW of critical load.
  • Texas . . . →Read More:Turkey,Data Centers and Dallas

Chicago – Tightest Data Center Market in the Country

National Highlights

  • As indicated at the end of 2010,the Reid-McConnell Tax Act has driven data center activity around the country with many tenants focused on the powered shell properties and incurring the capital expenses rather than interested in turn-key real estate solutions.
  • Chevron,Disney and Walgreens are a few of the companies that took advantage of the legislation during the first-half of 2011 for their new projects.
  • Wholesale lease transaction activity has been strongest in Santa Clara,Calif. and in suburban Chicago. The tenant composition has been less enterprise users and more Web 2.0 companies including,Zynga,Groupon and Server Central amongst others.
  • One of the biggest questions . . . →Read More:Chicago – Tightest Data Center Market in the Country

Is the New Jersey Wholesale Market Back on Track?

Two weeks ago,without much fanfare,Sentinel Data Centers announced that it had signed three major leases with “the largest”Fortune 500 firms for an initial aggregate footprint of 50,000 SF of turnkey data center space.  Since Sentinel’s first phase in  Somerset,N.J. represents 50,000 sf of data center space,this means that Sentinel has effectively sold out its first phase.  This press release came three weeks after The Wall Street Journal proclaimed that there was a “glut”of New Jersey data center space.

Meanwhile,we’ve heard from Digital Realty Trust ,that the company is now at 100% capacity in . . . →Read More:Is the New Jersey Wholesale Market Back on Track?

Part II -Lower Operating Costs Drive Interest in Northwest

As a follow up to last week’s post regarding data center activity in the Northwest,please read below for the effect of taxes on data centers in the Northwest region:

Data center demand has largely been the domain of the top tier 1 markets. Just as the data center industry has caught the eye of investors,so has new geographic opportunities. In recent years,eastern Washington has attracted several large data centers facilities in Grant (Quincy/Moses Lake) and Douglas (East Wenatchee) counties. Microsoft,Intuit,Yahoo,VMWare,T-Mobile and more recently,Dell Computers have developed data centers. The focus of these companies has been in Wenatchee,Quincy and Moses Lake. Oregon . . . →Read More:Part II -Lower Operating Costs Drive Interest in Northwest

Data Center Activity Reins on the Northwest

At the height of the telecom and Internet expansion during the 90s,the Northwest was considered a Tier 2 region because of its physical distance to other major cities and the limited population mass. For most carriers,it was the last piece of the national telecom network before the market crashed. When data centers began to proliferate a few years ago,the Northwest was still seen as the domain of local enterprise users like Boeing,Microsoft and Amazon. Recently,there has been strong interest by national data center developers and enterprise users for data centers in Washington and Oregon. The demand for new data centers in the Northwest is driven . . . →Read More:Data Center Activity Reins on the Northwest

The Future of Manhattan Data Centers -Part 3 -More on 111 Eighth Avenue

In The Future of Manhattan Data Centers -Part 1,I mentioned that “the jury is out for the future of data center tenants”in the building, but that it was unlikely that Google would try to remove these tenants entirely. We have now uncovered some new information that supports this theory,and sheds some light onto Google’s plans for the building.

On Google’s Jobs page they have listed a position in New York of “Strategic Negotiator,Network.” The role of this position is to “spearhead the acquisition and allocation of Google’s global networking infrastructure,”and ”interact closely with outside vendors to design,develop,and . . . →Read More:The Future of Manhattan Data Centers -Part 3 -More on 111 Eighth Avenue

The Future of Manhattan Data Centers Part 2 – The Next 111 Eighth Avenue?

In my last blog post I mentioned that new data center users and expanding tenants will likely not have any options in 111 Eighth Avenue.  Google has indicated that it plans to expand in the building and has taken all available space off the market.  Meanwhile,quality data center space in Manhattan is in high demand.  The most recent sizable data center spaces that have come to the market in Manhattan leased at very high rents after bidding wars -the former Lehman Brothers space at 85 Tenth Avenue and Digital Realty Trust’s space at 111 Eighth Avenue. Most recently,XO has leased a raw floor at 32 Avenue . . . →Read More:The Future of Manhattan Data Centers Part 2 – The Next 111 Eighth Avenue?

The Future of Manhattan Data Centers Part 1 – 111 Eighth Avenue

Back in September,when 111 Eighth Avenue -one of the world’s premier carrier hotels was up for sale,I mentioned in a blog post that “an astute purchaser [of the building] will see

the inherent value in great tenants with excellent credit (like Google),and data center tenants.” I did not predict at the time that Google itself would purchase the building.  Now that Google has purchased the building,and has shown its intent to expand its presence in the building as quickly as possible,many of our clients have asked us what Google intends to do with the building’s data center tenants.

Google has not had . . . →Read More:The Future of Manhattan Data Centers Part 1 – 111 Eighth Avenue

Data Center Activity Heats Up In Manhattan

Spotlight New York:

  • Since Google’s acquisition of 111 Eighth Ave.,all available space in the building has been taken off the market. The most recent data center transaction in the building was Digital Realty Trust’s sublease of 53,000 square-feet to Telx shortly before the building’s sale.
  • Sabey and local developer Young Woo are under contract to purchase 375 Pearl St.,a 1-million-square-foot former Verizon switching building,for an estimated $100 per square-foot from M&T Bank. The building is well-suited for data center use,with very heavy floor loads,high ceiling heights,limited windows,and abundant shaft space.  Verizon will maintain a three-floor condo interest in the building.
  • . . . →Read More:Data Center Activity Heats Up In Manhattan