In most markets, cost of land is a minor consideration for data center construction. It’s things like proximity to customers, cost of power, fiber infrastructure, and availability of tax incentives that really drive the decision making. But in Silicon Valley, with its skyrocketing real estate prices, land is a much bigger factor.
And that’s why Equinix, the global data center services giant based in the Valley, recently made a sizable land acquisition in south San Jose. The company needed to make sure it had land to expand on to keep up with high demand for data center space in one of its most important markets.
“It helps us secure runway for future development in a market that can be challenging to acquire green-field sites in,” Stuart Thompson, Equinix director of real estate for the Americas region, said. “It’s one of our best markets.”
After a period of oversupply about one year ago, Silicon Valley today is a landlord’s data center market. Demand is significantly outpacing supply, and rents have been inching up, according to the commercial real estate firm Cushman & Wakefield.
Equinix has seven Silicon Valley data centers with “pretty strong fill rates,” Thompson said. The company plans to start construction on the new land late next year.
It paid $38 million for 34 acres to prior owner Xilinx, a semiconductor company credited with having invented field programmable gate arrays that are all the rage in the cloud server space today.
The land is close to an existing Equinix campus in San Jose, which is what made it desirable. Because of the strong emphasis on growing an ecosystem of interconnected companies within its campuses, proximity to that ecosystem makes a data center attractive to new and existing customers, Thompson explained.
A lot of the demand in the Silicon Valley data center market is driven by cloud service providers, but it’s not limited to them. “It’s really about that campus effect and dynamic pull-through,” Thompson said.
Already the world’s largest data center provider, Equinix continues expanding at a breakneck pace. After having launched additional data centers in London, New York, Singapore, Toronto, and Melbourne in the first quarter, it now has 105 data centers across 33 markets, company executives said on its most recent earnings call.
It is in the process of expanding two existing data centers in Ashburn, Virginia, and expects in the near future to start new construction on a 44-acre plot of land in Ashburn it bought in 2012.
But the biggest expansion of this year is yet to come: closure of Equinix’s acquisition of TelecityGroup, one of Europe’s largest data center providers. Once closed, the deal, announced in May, will add 39 data centers in 10 European cities to the global Equinix portfolio, making it the largest data center provider in Europe.