Yahoo to Sublease 24 Megawatts of Virginia Space


Yahoo is seeking to sublease the entire 10 megawatts of data center space at ACC2, a DuPont Fabros facility in Ashburn, Virginia. (Photo: DuPont Fabros)

Some of the world’s largest technology companies are consolidating their Internet infrastructure in company-built data centers, and moving out of leased data center space. Will this shift disrupt the market for “wholesale” third-party data center space?

This important question is being tested in the nation’s two largest data center markets. Yahoo has recently decided to sublease a whopping 24 megawatts of space in northern Virginia, while Facebook has been marketing its leased space in Silicon Valley.

The subleasing could shift the balance between the supply and demand of data center space, which can influence the pricing on leasing deals.

Yahoo Gives Notice to DFT

Last week Yahoo notified its landlord in Ashburn, DuPont Fabros Technology (DFT), that it planned to sublease 24 megawatts of data center, including the entire 10.4 megawatts of space in the ACC2 building and 13.65 megawatts of space in DFT’s ACC4 data center. The ACC2 lease expires in Sept. 2015, while the space in ACC4 expires in three equal chunks of 4.55 MW in June 2017, March 2018 and March 2019.

The leases represent 11 percent of DuPont Fabros’ portfolio. Yahoo is required to continue making lease payments, but has the right to sublease its unused space. DFT says it sought to rework the lease at ACC2 to avoid a subleasing scenario.

“We asked for it back early, because we did have a customer for it,” said Hossein Fateh, President and CEO of DuPont Fabros, in last month’s earnings call. “They refused to give us the space back.”

In the wholesale data center model, a tenant leases fully-built “plug-n-play” data center space. They pay a significant premium over typical leases for office space, but are spared the need to invest large amounts of capital in data center construction.

Shift in Yahoo’s Model

Yahoo leased the Ashburn wholesale space from DuPont Fabros between 2000 and 2005. In 2009, Yahoo built a data center campus in Lockport, New York using an innovative “computing coop” design. Last year the company announced a $170 million expansion in Lockport.

The Lockport data center is one of the most energy efficient facilities in the world, operating at a Power Usage Efficiency of 1.08, and is powered entirely by hydro-electricity. While Yahoo hasn’t been very talkative about its data center strategy in recent years, it presumably has shifted workloads from Virginia to Lockport, leaving megawatts of empty space in Ashburn.

“In my opinion, subleasing data center space is extremely difficult, especially if it’s a shorter term lease,” said Fateh. “You almost always need a tri-party agreement between landlord, old tenants and new tenants. This is mission-critical space. So I’m not sure how you would do it without a tri-party agreement or without the landlord’s complete buy-in. Almost always, the new tenant needs something from the landlord. ”

It may be difficult, but it can be done. In Santa Clara, Facebook recently subleased three megawatts of space to Internap Network Services (INAP), which is using the space to expand its data center footprint in Silicon Valley.

Issues With Subleasing

When a large tenant subleases space, it provides additional options for companies shopping for data center capacity, allowing them to sublease from the tenant rather than leasing directly from a facility owner like DFT. It also has implications for pricing, as companies like Yahoo and Facebook may be willing to offer discounts to attract a sublessor who can help them reduce their data center bills.

Facebook has been marketing its surplus space in Santa Clara for nearly a year, but major wholesale providers say this hasn’t disrupted their business.

“In California, it’s well-publicized that Facebook has a significant amount of market space on the sublease market in Northern California,” said Fateh. “We have leased approximately 15 megawatts of space since that time to other tenants.”

Digital Realty Trust, which along with DuPont Fabros is one of the largest wholesale players in the northern Virginia market, says it doesn’t believe the Yahoo subleasing effort will impact its business in Ashburn.

“As to Yahoo, that product in our competitor is very different from our POD 3.0 architecture,” Digital Realty CEO Mike Foust said on the company’s recent earnings call. “It’s a shared backplane for the power train or UPS and electrical switchgear, and the HVAC is also not as modular as with our POD 3.0. Our customers really strongly desire the fully dedicated, UPS dedicated power and cooling. So that’s a huge product differentiator for us. We don’t believe that this sublease face will have much of an impact at all on our customers.”

One of the challenges for Yahoo will be finding a company willing to sublease its space for a short period of time. Yahoo’s lease at ACC2 has just 18 months remaining, while the leases at ACC4 are three to five years.

Get Daily Email News from DCK!
Subscribe now and get our special report, "The World's Most Unique Data Centers."

Enter your email to receive messages about offerings by Penton, its brands, affiliates and/or third-party partners, consistent with Penton's Privacy Policy.

About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.

Add Your Comments

  • (will not be published)


  1. It's great to find a firm willing to discuss this topic. In my mind the development of a subleasing market is a sign of a maturing market, and it's not a reason for FUD on the face of it, though 24 MW is a large amount of capacity. And finding that one perfect tenant is no easy challenge. The secondary issue here is the challenge all firms have in forecasting their needs. Here, a very sophisticated firm, with numerous capacity planners, seems to have over-shot by a significant margin. This example further supports the concept that there's no shortage of space...only a shortage of good planning. ET

  2. Daniel Golding

    Facebook has some of the finest data center capacity planners in the world. I find it laughable that this could be questioned. Folks like Amar Khan and Najam Ahmad are visionary in their approach to these problems. The real issue are some of the early long term data center leases which exceed the event horizon of technology shifts, both MEP and server/storage. That FB was willing to make this pivot in the name of optimization says a lot of good things about their methodology. However, its certainly true that Najam's methods may be too sophisticated for the casual observer.

  3. Lease lengths are a large factor in these subleasing scenarios, and Yahoo and Facebook followed different paths. It appears Yahoo had a 15-year lease in Ashburn. How do you plan capacity 15 years out? Yahoo's infrastructure has changed enormously since 2000, as have construction techniques, efficiency strategies and data center site selection. Facebook came along six years later, and focused on shorter leases, particularly in its later wholesale deals. It also spread out its wholesale deals across a number of providers. Whether intentional or not, this reduced the impact on any single provider. I suspect Everett is referring more to Yahoo than Facebook in his comment on capacity planning.