Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/818922
52 • May 2017 • Western Real Estate Business www.REBusinessOnline.com T he data cen- ter market witnessed big deals in 2016 from major players, new economic and regu- latory policy, and the wild card that is strategic cloud adoption. These fac- tors are changing the rules of the game, from data center pricing models to location selection tactics — and every- thing in between. So, what's next for the data center in- dustry? Here's a look at the driving forces behind the future growth in the West. Denver Denver will continue to succeed as a prevailing retail colocation market driven by many industry verticals, such as healthcare, telecom, financial services, technology and insurance. There has been a significant amount of activity from the financial services industry, with large Fortune 500 com- panies looking at enterprise develop- ment opportunities. With Denver's position as a top Tier II market and its centralized U.S. location, provid- ers will continue to benefit from end- users looking to satisfy edge, disaster recovery and IoT (Internet of Things) requirements. Denver has positioned itself well to begin absorbing some of the hyperscale cloud requirements that have already been prevalent in markets like Ashburn, Virginia, and Chicago. As the trend toward whole- sale product becomes more promi- nent, coupled with anticipated new tax legislation, companies like Google Cloud or SoftLayer may make a push for a Denver location. Los Angeles Tech, media and entertainment con- tinue to remain the focus of growth in the Los Angeles data center market. Asia Pacific companies and the in- creased focus on the cloud will be the driving forces that will shape this mar- ket. The growth of Asian companies in the U.S. has lead to the increased de- mand for rapid and reliable delivery of content, mobile and internet appli- cations. There is a misconception that the cloud will reduce the need for data center space. It is actually the oppo- site, as increased demand for secured content delivery through the cloud drives the demand for space to house that data. We have seen a tightening in the market over the past several months but feel the demand for space will increase in the Los Angeles area to support the increased populations need for technology. Pacific Northwest One of the biggest reasons the Pacif- ic Northwest is a top five U.S. market for leased data centers today is that operators have access to some of the lowest energy rates in the nation. This is due to renewable energy sources. In fact, the Northwest's low total cost of operations — primarily energy, la- bor and land — is very attractive to operators. In terms of sectors, we see the movement to the cloud and the IoT as major growth drivers. Cloud providers are aggressively expanding their infrastructure and the explosive growth of the IoT is creating greater need for data and telecom centers closer to the populations they serve. In fact, estimates suggest there will be upwards of 30 billion connected things with unique IP addresses by 2020. An example of this is KOMO Plaza in Seattle where JLL recently ar- ranged the $276 million sale of this ho- tel and data center facility downtown. Phoenix Much of the accelerated demand for data center space in Greater Phoenix is expected to come from hyperscale public cloud customers. With world- wide IaaS (Infrastructure-as-a-Ser- vice) and SaaS (Software-as-a-Service) solutions up by 15 percent in 2016 and projected to grow another 15 percent in 2017, Phoenix is bound to capture some of this rapid growth through sizable takedowns from cloud provid- ers. For years in the colocation arena, Phoenix's success has been influenced by the credo of "build supply and de- mand will follow." Under this strate- gy, providers are racing to the market to deliver more product throughout 2017. Providers with developments either under construction or in the design and implementation stage in- clude CyrusOne, Aligned Data Cen- ters and Digital Realty. Other regional and national providers continue to be bullish on the Phoenix colocation mar- ket for many factors, which include, but are not limited to, low vacancy rates, healthy and consistent year- over-year demand, favorable legisla- tive incentives, Phoenix GDP growth, and the desire to capture the expected hyperscale cloud opportunities. Northern California Key factors that will have an effect on growth for Northern California in the next several years include our high land prices, which, in some key DATA CENTER UPDATE As tech continues to grow, so, too, does its need for space. This includes virtual space as well, which means the data center industry is also growing. 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