Northern Virginia’s inventory represents second largest market on the East Coast
- September 29, 2011
As real estate properties go, data centers are a bit boring. They’re big and boxy and so wrapped with security technology that most visitors can’t make it past the lobby. Yet in Northern Virginia, these centers continue to proliferate, drawing investment from some of the industry’s largest players and creating a unique niche in the area’s commercial real estate market.
In fact, in terms of inventory Northern Virginia — primarily the Ashburn area of Loudoun County — is second only to the greater New York/New Jersey market.
For Latisys CEO Peter Stevenson, Ashburn is the place to be. Since the managed hosting provider formed in 2007, it has been buying companies across the country in places like Irvine, Calif.; Denver and Chicago. Last year it came to Loudoun County with the purchase of Pryme Technologies’ 72,000-square-foot data center. Expansions have bumped that total to 123,000 square feet of data-center space at a two-building campus. “Our plan is to build out our campus here and then find expansion room elsewhere in the Ashburn market,” Stevenson says. “We just felt that the market here in Ashburn was really the best place.”
Plenty of others agree. The past few years have seen a surge of growth with Ashburn becoming home to a cluster of data-center providers. Centered around Waxpool Road are leaders such as DuPont Fabros, NTT Verio, ServerVault and Equinix, which just announced its 10th center. Newcomers include Seattle-based Sabey Data Center Properties, the largest, privately owned data center owner and operator on the West Coast. It recently purchased 38 acres in Ashburn for a 490,000-square-foot data center.
The main reason Ashburn has become such a hub is access to fiber networks. Much of the fiber was installed years ago to serve the federal government or by telecom firms that sprang up in the area in the 1990s. There are about 20 fiber providers offering connection options in the Ashburn area, which means plenty of options for data-center providers and their customers. “We are the fastest-growing, and poised to be the largest, data center cluster in the eastern United States,” says Buddy Rizer, business development officer with the Loudoun County Department of Economic Development.
As a real estate project, data centers are unique. They have different design, power load, equipment and security requirements than other commercial properties. The Latisys facility in Ashburn, for example, boasts 12 megawatts of on-site power, or nearly enough to power 3,000 homes. Security also is a primary concern, with clients storing some of their most sensitive data in these warehouse-looking facilities. Sterling-based Carpathia Hosting hosts data in three area centers. It also owns The Vault data center in Dulles, the most secure, federally compliant hosting facility in the industry. More than 26 government agencies use cloud services provided by Carpathia, including the Navy, the Army and the CIA.
More private companies using data centers
Aside from government clients, a recent report by Tier 1 Research found increasing interest by private companies to outsource data-center needs. For one thing, storing data on servers requires space and energy. By leasing space, companies can lower energy bills and forgo building a data center.
The customer mix in Northern Virginia includes Global 1000 companies, federal entities and Silicon Valley startups, says Bryan Loewen, senior managing director of the New York-based Newmark Knight Frank Data Center Consulting Group. He expects demand to keep rising. Some federal agencies, the finance and insurance sectors, plus Web 2.0 companies and cloud computing operations “are growing at exponential rates these days,” he says.
Plus, more companies on the West Coast or in major Midwest markets want an East Coast presence. In addition to abundant fiber connectivity, Ashburn offers relatively cheap power and available land. It also has a skilled work force and supportive local government. “I think you’ll continue to see Northern Virginia be a very hot data-center market, and the demand will continue to outpace available supply,” Loewen says.
One of the firms taking advantage of the data-center demand is San Francisco-based Digital Realty Trust. Sixteen of its 92 U.S data centers are in Northern Virginia. “If you look at the square footage we have around the world, we have a bigger concentration in Northern Virginia than in any other market,” says David Caron, Digital’s senior vice president of portfolio management. In April the company paid $17.3 million for a 38.8-acre parcel next to its existing data-center campus in Ashburn. It plans to construct up to six buildings there over the next three to four years, adding about a million square feet of space. Demand is so high that the company reports 14 of its 16 data centers in Northern Virginia are fully leased.
Not all of Virginia’s data centers are in Ashburn. To the east along the Dulles Toll Road are smaller clusters in Reston and Tysons Corner. Prince William County also has been pursuing this sector with success and has attracted data centers from firms such as Power Loft, Digital Realty Trust and Microsoft.
Richmond also has several data centers, including the former Qimonda semiconductor plant. Quality Technology Services, a data-center firm based in Overland Park, Kan., bought it last year, so QTS can use the building’s existing power access to support new data-center clients. And last year, Microsoft announced plans to spend $499 million on a new data center in Mecklenburg County, near the North Carolina line.
Caron says that, for some clients, not being in Ashburn is a good thing. Customers need redundancy, and if they’ve got a data center in Ashburn, “they might want one in another part of the state, to be on a different electric grid or telecommunications grid. You don’t want all of your data centers in one location,” he says.
Still, Loudoun gets high marks for its role in building the data-center market. “They understand the data-center market, and they understand the importance of that to Ashburn in terms of creating a data hub,” says Stevenson of Latisys. The pull created by that cluster creates “communities where interested companies who do business together will congregate,” he adds.
With new projects, Rizer says the county puts together a team to move them quickly through the steps of zoning, site planning and permitting. “Generally we have found that people want to be up and operating in 18 months to two years,” he says. “That’s where we can make a difference.”
The county has about 4 million square feet of data-center space now, out of a total of 5 million in Northern Virginia. Rizer predicts Loudoun’s total data-center space will grow to nearly 10 million square feet over the next 10 years. Earlier this year the federal government announced plans to close hundreds of data centers in a push to save $3 billion in electrical and operating costs. That will likely push demand higher, Rizer and others say.
The growth is good for county coffers. While data centers are capital-intensive projects that require a lot of land, they don’t necessarily bring a lot of jobs or new residents. That’s fine in Loudoun, where unemployment can drop below 4 percent, and schools and roads are already crowded. “Obviously it is high-value real estate, and we get the benefit of the real estate tax, the personal property tax and our portion of the sales tax,” Rizer says. “It adds up to some really big numbers.”