ASHBURN, Va. – To visualize how fast cloud computing is growing, take a drive along the eastern end of Gloucester Parkway here in Ashburn. A year ago, the south side of the road was an open field. Now the view is dominated by three huge new data centers that will house servers for Amazon Web Services. Behind this row of server farms is land that has been prepared for a major data center campus for Equinix.
This is just the tip of the iceberg. In Ashburn, there are data centers being built almost everywhere you look.
Along the east side of Loudoun County Parkway, Digital Realty is moving dirt for a massive expansion of its Ashburn campus. Around the corner rises the sturdy cement framework of the future ACC9 data center being built by DuPont Fabros Technology. Make another turn, and you encounter signs for a pending 2 million square foot project from RagingWire. Drive a little further, and you pass by the construction for the first phase of Intergate.Ashburn, a major new data center campus for Sabey Data Centers.
Ashburn is the Internet’s boom town. It sits atop the world’s densest intersection of fiber networks, making it an ideal location to store and distribute data. It is unique in its connectivity, and its data centers are laying the physical foundation of the digital economy.
Yet the current pace of construction is remarkable, even for Ashburn. And there’s more in the pipeline. Industry sources say three more data center companies will soon enter the Northern Virginia market, who will all move quickly to build new facilities.
Building for The Clouds to Come
Not everyone yearns for a horizon filled with data centers. But Americans want the Internet, and they want it all the time, everywhere they are.
As such, Ashburn is on the front lines of America’s relationship with the physical Internet. The data centers that dominate Ashburn’s commercial landscape lack the flashy logos seen on most corporate corridors. But behind these nondescript facades live hundreds of thousands of servers for Apple, Facebook, Microsoft, LinkedIn and virtually every other major web property.
The construction sites dotting the landscape are a leading indicator of the clouds to come. But Ashburn also offers an important window into how industry, government and communities handle the transition to a world with more data centers in more places. And that world is coming, sooner than you think.
A Unique Location for Data
The Equinix campus quickly become the Web’s busiest meeting place, creating a powerful network effect in which each new connection adds to the value of its digital ecosystem. Loudoun County is home to more than 60 data centers, with 6 million square feet of data center space and another 4 million square feet under development. Nearby Prince William County says it hosts an additional 2 million square feet of data centers.
“We’re in a very unique location that brought together the right elements at the right time,” said Jim Leach, Vice President of Marketing at RagingWire Data Centers, which operates two data centers in Ashburn.
That’s why data center projects are old hat. Buddy Rizer, the Executive Director of Economic Development in Loudoun County, likes to say that there’s been a data center under construction in the county every day for as long as he can remember.
But the current flurry of construction goes beyond business as usual. Data center growth is driven by a major societal shift to digital delivery of information and services. This trend has accelerated with the emergence of cloud computing, which is allowing data to move out of corporate IT closets and server rooms and into highly-efficient server farms operated by Internet titans like Amazon, Google and Microsoft. Data center developers are scrambling to keep up.
“We’ve doubled down here,” said Donough Roche, the VP of Global Sales Engineering for Digital Realty. “It’s driven by our customers. Ashburn is the first mega-cluster. We’re seeing that pattern start to develop in other parts of the world as well.”
There’s more on the way. “There will be three new entries coming into the market very soon,” said Rizer, the point man for data center recruitment in Loudoun.
Rizer wasn’t at liberty to name the companies, but other industry sources say they have also heard three new players are on the way. New arrivals tend to build quickly, as was the case with CyrusOne, which opened its first data center in nearby Sterling in late 2014, and has completed two huge facilities, with its third and fourth data centers under construction already. Another new entry, INFOMART, is also hard at work building a new data center.
How big is the demand? In 2015, which was a boom year, Northern Virginia added 62 megawatts of data center capacity, according to Allen Tucker, Managing Director at Jones Lang LaSalle (JLL). This year demand has jumped, with 105 megawatts of space under construction and another 40 megawatts of capacity set to kick off before the end of 2016. That’s a total of 145 megawatts, or more than double the 67 megawatts in 2015.
JLL predicts that cloud adoption will double the size of the data center industry over the next five years. “Leasing activity is hotter than ever in the multi-tenant data center space, with cloud demand fueling much of the momentum,” JLL writes. [clickToTweet tweet=”Jones Lang LaSalle: Cloud adoption will double the size of the data center industry over the next 5 years. ” quote=”Jones Lang LaSalle: Cloud adoption will double the size of the data center industry over the next 5 years. “]
The Economic Benefits of the Digital Shift
What does 145 megawatts of new data center capacity mean to the economy? Leading data center developers spend $5 million to $8 million per megawatt to build new server farms. If you calculate using the middle of that range, 140 MW works out to an investment of $942 million in construction.
“This is an economic engine that’s viable and meaningful for the state of Virginia,” said Tucker.
That’s not even counting the servers and storage that lives inside the data centers. Since 2009, DuPont Fabros Technology (DFT) and its customers have invested more than $3.3 billion at its Ashburn Corporate Campus. DFT and other data center companies receive exemptions for sales and use taxes if they invest more than $150 million in computer equipment and software.
Virginia recently extended those economic incentives through 2035, ensuring that the state can keep pace in an increasingly competitive environment for large data center projects.
Incentives Prompt Debate
Incentives for data centers have become a hot button issue in some states, with taxpayers and legislators questioning the value of perks for giant tech companies. The city of West Jordan, Utah recently sought to offer tax breaks Facebook for a huge data center project. But county and state boards balked at the size of the incentives, and Facebook opted for a site in New Mexico.
At least 23 states now have specially tailored incentives for data centers, most of which have been enacted or updated in the past five years, according to an analysis by the Associated Press.
Virginia has seen a strong return on its investment in data center incentives, according to an economic impact study by Mangum Economics, a Richmond-based research firm. That’s particularly true in northern Virginia. For every dollar in county expenditures, the data center sector provided approximately $9.50 in tax revenue to Loudoun County, and approximately $4.30 in tax revenue to Prince William County, the study concluded.
The data center industry employed 12,533 workers in Virginia in 2014, with an average annual income of $105,942 per year. The industry “is a fast growing sector, that pays high wages, and those wages are rising at a rate that far outstrips the norm for Virginia’s economy,” Mangum noted.
That’s not true of the entire state. A recent article in The New York Times examined a huge Microsoft cloud campus in southern Virginia that appears to have provided little visible economic impact beyond temporary construction jobs. The tiny town of Boydton (population 400) illustrates that not all locales benefit from data center investments in a similar fashion. (It should be noted that The Times’ selection of Boydton as its test case may say more about the paper’s attitude towards the data center industry than the economic benefits of cloud campuses; other rural towns have had different experiences, which we’ll examine in future stories at Data Center Frontier).
Noise, Facades Prompt Discussion
Even with the local economic benefits, there have been some tensions in the relationship between Ashburn’s data center cluster and its neighbors. In 2013, residents showed up at local meetings to complain about the proximity of data centers to housing developments, noise from diesel backup generators, and the lack of aesthetic appeal of the facilities.
Loudoun County has navigated these disputes, which can easily become divisive, with some success. A factor in this is the presence of Rizer, who is widely hailed for his strong working relationship with the data center industry, but is also committed to striking a balance between commerce and quality of life in Loudoun.
So everyone talked. Members of the Loudoun zoning board met with data center executives as well as representatives of the affected residential communities. The discussion sought to balance the importance of the data center industry to the local economy and the quality of life concerns voiced by local residents.[clickToTweet tweet=”Ashburn residents’ concerns include noise from generators, and data centers’ lack of aesthetic appeal.” quote=”Ashburn residents’ concerns include noise from generators, and data centers’ the lack of aesthetic appeal.”]
In April 2014, the Loudoun Board of Supervisors passed a measure that made data centers a “by right” permitted use in specific areas, providing clarity on future development. The board also created guidelines on screening around equipment yards, as well as improvements to data center facades to improve their appearance. The board also said it would work more closely with data center operators on enforcing current ordinances on noise.
“(Data centers) are great users in the county, but it does come with the price of people having to look at these buildings,” Vice Chairman Shawn Williams told InsideNoVa. “Can we at least ask the people who are making a lot of money on these buildings to make them not look like an eyesore?”
Tag Greason is an EVP of Sales at QTS Data Centers, and also well acquainted with local politics as a member of the Virginia House of Delegates. Greason notes that data centers don’t place many burdens on the roads or schools.
“A lot of residents see this and say ‘oh, there’s another big ugly building,” said Greason. “What they don’t recognize is that all that revenue (from data centers) comes with very little burden. The average citizen doesn’t quite get that.”
More recently, the Loudoun board took a different approach with data center development along Route 50 in southern Loudoun County, reclassifying data centers as a “special exception use” rather than a permitted use in the commercial light industry zone. This effectively means that data center proposals in that area will be considered on a case-by-case basis. The move is a response to resident concerns about additional power lines needed to support the projects, as well as proximity to residential development.
The Road Ahead: The Metro is Coming
Data centers aren’t the only growth story in Ashburn. In coming years, a new Metro transit station will be built by the Dulles Greenway, near the current Digital Realty data center campus. The extension of the D.C. subway will create new possibilities for development in the area, prompting fresh demand for land around the station. Data center companies are keenly aware of the value of real estate in Loudoun County.
“Land is one of the key issues, but it’s not necessarily the cost,” said RagingWire’s Leach. “It’s the availability of land in a data center market that’s crucial.”
In recent months the surge in cloud demand has prompted a land grab around Ashburn, as data center developers have moved to lock down available properties to ensure room to grow as the building boom continues.
“The race for potential development sites has made land scarce, particularly in the area immediately around Ashburn,” noted William Hall, the Director of Data Center Research for Cushman & Wakefield, in a recent report. “Demand in the Northern Virginia market has prompted developers to compete to acquire available development sites in the region.”
“One of the things that I worry about is that the value of the data center is so much higher than all other use cases,” said Aaron Sawchuck, founder and chairman of Colospace. “Will the shopping centers be torn down to make way for a data center?”
Greason of QTS said developers will have to make the most efficient use of existing real estate, building taller and denser projects. This trend is already seen at Google, which is building four-story data centers, as well as in Silicon Valley, where developers in Santa Clara – traditionally home to single-story data centers – are now building two-story and three-story facilities.
“We’ve had a little bit of luxury over the last 10 years: the luxury of being able to grow,” said Greason. “We have got to figure out how to improve the delivery of data centers to keep up with the demand we’re talking about.”