Datacenter markets in the US and their competitive advantages

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If the Internet boom of the late ’90s into the early 2000s created the “First Wave” of data center real estate growth, then the current cycle of annual double-digit growth from 2008 to the present is best characterized as the more robust “Second Wave.” To help find the optimal location for these data centers, companies are utilizing site selection firms to identify the best locations based on a combination of factors ranging from utilities costs, infrastructure, disaster recovery risk, real estate availability and economic incentives. “The demand for new raised-floor environments have certainly been met by new construction of enterprise data centers and the popular wholesale colocation solution,” says Michael Rareshide, Executive Vice President of Site Selection Group, who negotiates mission critical and colocation projects for these end-users. “We are not surprised by this five-fold estimate.”
Top data center markets in the US and their competitive advantages
Several major metro areas of the United States such as Silicon Valley, Northern Virginia and Northern New Jersey have developed into significant hubs for mission critical facilities during the First Wave and continue to enjoy major growth during this Second Wave. Site Selection Group has identified the 10 largest data center metro areas based on the presence of enterprise facilities and wholesale colocation capacity. The following list identifies the leading locations.    
           
Top 10 Largest Data Center Metro Areas

Northern Virginia/ Washington DC
Santa Clara / San Jose / South Bay
Northern New Jersey
Chicago
Dallas / Fort Worth
New York City
Phoenix
Seattle                        
Los Angeles
Atlanta

While no re-shuffling in and out of the top 10 is expected, the following highlights some of the positive and negative attributes of the top five markets.

5. Dallas/Fort Worth (DFW)DFW is routinely at the top of most site selectors’ lists for its minimal risk factors coupled with the business friendly environment. Many wholesale colocation providers are in expansion mode and are keeping up with demand. With several corporate relocations and expansions in insurance, technology and financial sectors announced, this demand will continue to be robust.  Ease of ready power and available land sites in fiber-rich submarkets also add to this market’s attractiveness. Some competitor concerns that the market could get overbuilt have been whispered, yet the user demand suggests otherwise.

4. ChicagoChicago is also on most consultants’ lists and will continue to be a high demand market for the foreseeable future for its minimal disaster risk factors and excellent connectivity. Just a few years ago there was minimal available wholesale colocation, especially in the suburbs, but that anomaly has been corrected and the providers are now keeping up with demand. In fact, the pendulum is shifting to favor the enterprise user with several additional providers entering the market, resulting in more aggressive overall pricing.

3. Northern New JerseyWith its proximity to Manhattan, the Northern New Jersey area will remain in the top five since so many global business sectors maintain these operations in the tri-state region. As one of the first enterprise user markets to embrace outsourcing to wholesale colocation providers, the region’s competition and product availability should keep power pricing reasonably economical.

2. Santa Clara / San Jose / South BayNo surprise that Silicon Valley enjoys sustained demand as the entrepreneurial home to so many tech startups.  But land and construction costs, especially in the desirable Santa Clara area (due to Silicon Valley Power), are some of the highest in the U.S. and have discouraged some needed new development. The “cloud” (pun intended) on the horizon is the green initiatives that may be required due to California’s ongoing drought. Data centers use a lot of water, resulting in a backlash against any large water users. While noted here, green initiatives are a concern for all U.S. markets for new and existing product.

1. Northern Virginia / Washington DCDemand across all industry segments and the federal government have built this market into the largest in the U.S. Availability of power and land in fiber-rich submarkets is also important, along with numerous colocation providers. This landscape is not expected to change over the next few years.