Hyperscale Leasing ‘Through the Roof’ in Northern Virginia

Sept. 25, 2018
In the first six months of 2018, developers in Data Center Alley in Northern Virginia leased more mission-critical space than has been sold in any single year, in any market, anywhere on earth.

LEESBURG, Va. – The data center market in Northern Virginia continues to go from strength to strength. In the first six months of 2018, developers in “Data Center Alley” leased more data center space than has been sold in any single year, in any market, anywhere on earth.

As a result, the building boom has kicked into an even higher gear, as data center developers seek to keep pace with a surge in demand from hyperscale players.

What does it all mean? And what happens next? Those were the topics at the recent CAPRE Mid-Atlantic Data Center Summit, held at the Stone Tower Winery in Leesburg, where data center professionals assessed the activity in Northern Virginia, and how to support the industry’s continued growth.

“We’ve had a fun ride in Northern Virginia,” said Stuart Dyer, Business Development Manager at CyrusOne. “What we’ve seen in the last couple years is hyperscale customers coming in and taking down massive deployments.”

“The hyperscale leasing has been through the roof,” said Robert Gutman, Senior Equity Analyst at Guggenheim Partners.

How High is the Sky? Ask the Clouds

Data center users leased or pre-leased 168 megawatts of data center capacity in Northern Virginia in the first half of 2018, according to Allen Tucker, Managing Director, Data Center at JLL. That figure is more than all other U.S. markets combined.

“No other market has ever done more than 59 megawatts in a year,” said Tucker.

Several service providers are reporting huge leasing, including Digital Realty, which says it has leased 100 megawatts of capacity in Northern Virginia over the last 12 months. CloudHQ and CyrusOne are said to be well into the double-digits in MWs leased in the first half of 2018.

Leasing has continued apace in the third quarter, leading to speculation about where the final number for 2018 absorption will wind up. A year-end total of 250 to 300 megawatts is possible, according to an informal audience survey conducted by Dan Ephraim, Vice President at Infomart Data Centers, who moderated a morning session featuring service providers active in Northern Virginia.

As we’ve noted in our recent coverage, demand in Northern Virginia is being accelerated by FOMO – the fear of missing out. A number of key business drivers have aligned in Data Center Alley, including new customers and new providers entering the market, a dwindling supply of premium development sites, and the rising cost of land. As the appetite for data center space remains high, both users and developers are looking to play a longer game. And that means larger leases.

Massive hyperscale deals have generated excitement, but also create the potential for additional business from enterprise customers seeking low-latency connections to the Amazon cloud or Facebook ecosystem.

Lee Kestler of Vantage Data Centers (left) and RagingWire’s Jim Leach were among the panelists at the CAPRE event. (Photo: Rich Miller)

“An enterprise colocation customer can be close to a hyperscaler and get the best of both worlds,” said Jim Leach, Director of Marketing at RagingWire Data Centers, who said the appetite for data storage continues unabated. “None of us clean out our cell phones and delete files. When we run out of space, we get a new one.”

Developers are accelerating their supply chains to keep pace with customer demand. Execution matters, according to Dyer of CyrusOne.

“We bring capacity online very rapidly,” said Dyer. “It has instilled a lot of confidence in our cloud customers. We’re continuously building to stay ahead of that demand.”

“Competition is helping us improve supply chain management,” said Lee Kestler, Chief Commercial Officer at Vantage Data Centers. “If you don’t deliver on time, you’re just another guy who has some land.”

Looking Beyond Loudoun

A key theme of discussion at the CapRate summit was the emergence of sub-markets in Northern Virginia, where development has been focused on Data Center Alley – the cluster of data centers surrounding the Equinix interconnection complex.

“The reality of the situation is that there’s enough business for everybody,” said Buddy Rizer, Executive Director of Economic Development for Loudoun County. ” There are deals that will not come to Loudoun County. I’d like to see them go to Prince William or Henrico. Not every deal has to come here. I think we’re the best in class, but there are other options.”

There are still new areas of opportunity within Loudoun County, including the Route 50/Dulles Airport region in Southern Loudoun, where Digital Realty just bought 424 acres of land for a future data center campus. Google and Amazon Web Services are also building new data center campuses along the Route 50 corridor.

There’s also a sub-market emerging to the west near Leesburg, where Microsoft has just acquired 330 acres of land in the Compass Creek development for $73 million. The Microsoft project is located near a new campus for cloud rival Google, as well as a new data center from Compass Datacenters.

Allen Tucker of JLL models his cloud suit at the recent CAPRE Mid-Atlantic Data Center Summit, while Loudoun County’s Buddy Rizer enjoys the moment. Tucker and Rizer gave the luncheon keynote at the CAPRE event. (Photo: Rich Miller)

A looming problem is the data center workforce, which consists primarily of experienced professionals. How to address the looming skills gap has a been a frequent topic of conversation at recent industry conferences, and the CAPRE event was no exception. It is estimated that woman account for between 10 and 15 percent of the data center workforce, and there are few established academic pipelines to provide college graduates that can step into data center positions.

“Workforce has become a big priority for us,” said Rizer, who said Loudoun County has recently hired a staffer specifically focused on workforce development.

“Workforce development has become a big priority for us.”
Buddy Rizer, Loudoun County

This month Northern Virginia Community College has launched an Emerging Technology curriculum providing two-year associate degrees in data center operations and cloud computing. Meanwhile, a new STEM-focused high school, The Academies of Loudoun in Leesburg, is offering a two-year certificate program in cybersecurity that trains students to move directly into an IT career.

These programs are a good start, but more work is needed, especially in Loudoun County, where Rizer said the unemployment rate is just 2.4 percent.

“If all the unemployed people took jobs, we still wouldn’t fill all the technology job openings,” said Rizer. “We can’t do it by ones or twos. We need to do it by hundreds and thousands.”

Rizer and other panelists at the CAPRE event remained optimistic that Northern Virginia’s data center industry  is poised for future growth, but must not rest on its laurels.

“We have to continue to tell the story,” said Rizer. “We ‘re trying to ensure that the future of the industry looks bright. I don’t think any CEO every got fired for putting their data center in Ashburn.”

About the Author

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.

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