Nation’s No. 1 Data Center Market in Northern Virginia Isn’t Done with Boom Cycle

Iron Mountain’s Virginia Data Center in Manassas offers colocation services for its tenant base. The campus has access to peering sites in Ashburn and Reston.

The Northern Virginia data center market continues to outpace the rest of the country’s leading data center markets by more than double. By the close of the first half of 2018, Northern Virginia had 317 megawatts (MW) under construction with Phoenix a distant second at 136.5 MW. (In real estate terms, industry standard is approximately 150 watts per square foot.) 

What drives Northern Virginia as the leader today is an unparalleled business ecosystem that has grown over the past 20 years from the original edge data center to today’s premier data center market. The market is a prototype for which subsequent data centers strive to achieve.

Alan Tucker, Managing Director, JLL

Ideal Data Center Landscape

Very few enterprises build their own on-premise data centers. Northern Virginia got its start as a leader in this space by going into colocation data centers. The companies that pioneered the movement, like Equinix, DFT and Exodus Communications, have brought Northern Virginia to where it is today. 

But, it’s more than that. It takes a confluence of legislative support, fiber, power, development, deployment of new IT technologies and other partnerships to allow the Northern Virginia market to flourish into the tech superpower it is today.

Northern Virginia has also been a market leader in adaptive change and design. The construction of data centers has gone from single to multi-story and from a custom build to a modular build. Digital Realty Trust, for example, was the first to develop turnkey pod data centers (TKD) in early 2011, with the first modularized electrical room and mechanical pumping systems. 

This design expedited the entire development cycle, allowing Levels 1-4 commissioning in a controlled environment, giving rise to even more colocation space being developed. (During the construction phase for data centers, there are five levels of commissioning that need to be completed.) Build time and delivery timeline shrunk significantly and reliability of delivery became more predictable.

The pod TKD model changed data centers from construction to manufacturing. The region will continue to see key development and tech initiatives, such as further forays into multi-story data center facilities to support new technologies, cloud-based services, artificial intelligence, machine learning, virtual reality, 5G mobility, autonomous vehicles, cybersecurity and the Internet of Things.

Data Center Alley

Northern Virginia is home to Data Center Alley, situated 35 minutes west of downtown Washington, D.C., in Loudoun County. More than 70 percent of the world’s internet traffic passes through the region each hour of every day. It’s the only market with all five major D.C. REITs and campuses.

What makes this specific market attractive for data centers and why it continues to grow is primarily because it all began here. Data Center Alley also has minimal to no natural hazards, a neutral climate, efficient energy usage (designated by the term PUE), low operating expenses and the largest neutral network peering points (Equinix and Coresite).

The submarket also has proximity to large population centers, a high concentration of federal government and defense contractors, flexible land bays that are readily available, limited repurposed powered base buildings, large IT hardware depots that allow for fast response time for equipment replacement, a pro-business climate, extensive fiber provider networks and an aggressive and cost-effective energy provider, Dominion Energy.

Military Presence

The Washington, D.C., metro region boasts one of the most highly educated and skilled labor pools in the country. Northern Virginia has the greatest access to the labor pool that is always present, the United States military. 

Military men and women come to the region, work in one of the service branches and eventually plant enduring roots here by switching over to civilian life or retiring. They bring with them a tremendous work ethic and transferable skills into the data center industry. Other data center markets don’t have that same labor pool.

What’s Coming

Over the past five years, historic demand and absorption have accelerated the market. In the first half of 2018, there was approximately 168.25 MWs of space absorbed. The second half of the year may surpass 200 MWs as new data center providers and enterprise deployments are entering the Northern Virginia market. 

The next confluence is further advancements in technology. People want to be in Northern Virginia to utilize this superior infrastructure for their enterprise and the ability to monetize their technology for consumers to actively use to improve their lifestyle (including Uber, Waze, Amazon, Facebook, iTunes, Nest, Netflix and gaming). The market will continue to grow with the development of new technologies like artificial intelligence and machine language.

In recent months, companies are making large investments in Northern Virginia. From Digital Realty Trust’s $236.5 million investment in 424 acres in Dulles to Sentinel’s purchase of 280 acres at Washington Dulles Gateway, announcements across Data Center Alley continue to drive activity. This is just the beginning of our new high-tech manufacturing industry as Data Center Alley continues to expand exponentially year-over-year.

Alan Tucker, Managing Director, JLL. This article originally appeared in the November 2018 issue of Southeast Real Estate Business.

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