By Jacob Bourne
“Cloud adoption acceleration will double the size of the data center industry over the next five years.” The prediction is from Data Center Outlook: Smart Growth, a report by researchers at Jones Lang LaSalle who examined trends in the data center industry for 17 major North American markets during 2016.[contextly_sidebar id=”CsqStoWgDeRhZrnSaCs9gi46mszlGGcW”]“The mindset is the conversion of physical storage to electronic storage and the continued usage of content delivery,” said Conan Lee, managing director, brokerage, JLL. “The world is changing. Everyone in our office is uploading files and opting for cloud storage or using dropbox services.”
Although intentionally building data centers in colder climates was the trend of yesteryear, as cooling technologies improve and demand for cloud data rises, greater geographic diversification and flux follow to bring more speed, reliability and flexibility to data flow.
The threat of climate change has pushed for more innovative refrigerant cooling systems and overall efficiency in data center operations. At the same time, data center users and providers are placing more emphasis on choosing locations with access to cleaner, renewable energy sources such as hydropower instead of coal. The location of fiber networks with strong connectivity is also a crucial consideration for potential data centers.
In an overview of the trends across markets, the report anticipates that cloud computing and storage will continue to become increasingly significant for data center usage. In turn, this trend has caused a shift away from multi-tenant data centers towards single tenant centers dominated by Microsoft Azure, Oracle, Amazon Web Services, and Google Cloud Platform. Furthermore, data center server usage has and is expected to continue soaring in the U.S. as more people utilize streaming services, social media, and online banking on a regular basis.
In the Pacific Northwest, the report found that for the Seattle area, central Washington, and Hillsboro, Oregon, 70-percent of user demand is from technology industries. Data center growth in the region has benefitted from a high reliance on hydropower and strong telecommunications grids.
“I don’t think the Northwest will diversify from tech demand,” Lee commented. “More and more, other industries like healthcare, financial and legal are taking applications to the cloud. It’s technically a tech transaction. It’ll stay the same or increase from a Northwest and Bay Area perspective. Financial and government sectors are starting to buy cloud servers for many applications, such as Cloud 365. Law firms are taking storage to the cloud.”
Bay Area trends are more complex as the data center realities for San Francisco and Silicon Valley are distinct. In terms of the most significant 2016 transactions, Silicon Valley was the center of it all, most notably with AWS adding Direct Connect to CoreSite’s Santa Clara campus for a 20 megawatt lease.
“The special thing about the City of Santa Clara is that they control the utility, so it’s 40-percent cheaper for users or operators,” explained Raul Saavedra, executive vice president, JLL San Francisco. “Data centers consume a tremendous amount of power. The power is cheaper relative to nearby communities with PG&E power, so why would you put a data center outside of Santa Clara? For example, Sunnyvale is not Santa Clara in terms of power.”
While the Santa Clara data center vacancy rate is less than five percent, according to Saavedra, with much of the consumption coming from Microsoft and Amazon, it’s into the double digits in San Francisco, which has a shortage of adequate development spaces. Digital Realty dominates the San Francisco market with data centers at 365 Main Street, 360 Spear Street, and 200 Paul Avenue. Though the high costs of buying and operating centers in San Francisco has caused demand to drop, interest in Santa Clara persists.
“The key may be to not overbuild in Santa Clara but instead shift to places like Hillsboro, Nevada and Phoenix where there are some great incentives,” said Saavedra. “Hillsboro, Oregon is an especially smart move as the fiber connectivity is excellent, utility costs are cheaper and more environmentally friendly. There’s also no sales tax. Better fiber connectivity is what really makes a difference for the performance of markets.”
JLL researchers expect increased cloud demand to remain steady and annual global cloud spending to reach $204 billion by the end of 2016.