Vantage Data Centers' V2 Santa Clara facility. (Source: Vantage)

Vantage to Add 21MW in Supply-Starved Silicon Valley Data Center Market

Editorial-Theme-Art_DCK_2016_May

Our theme this month is site selection. From electricity costs and network infrastructure to the available pool of skilled workforce, data center site selection is one of the most complicated and important business decisions a company makes. Data center location affects everything from the cost of doing business and overall company agility to the quality of user experience. And, like every other aspect of the data center business, where companies choose to put their critical IT infrastructure and why is changing because of … you guessed it: the Cloud. This month, we’ll examine these trends more closely.

Here is some good news for Bay Area technology firms: One of the tightest data center markets in North America is going to have more product available.

Vantage Data Centers has announced plans to up its market share in the Silicon Valley data center market by expanding its existing 51MW campus in Santa Clara to 72MW. Earliest availability for the V5 and V6 buildings is projected for the second half of 2017.

The latest expansion is in addition to Vantage’s 6MW V4 data center which is expected to be delivered in fall 2016. The two-story V4 design is similar to the company’s V1 facility, with 200 watts per square foot on a raised floor with airside economization, or free cooling.

“Vantage’s original V1 facility contains the only newly built 3MW, modern data center space currently available in the Silicon Valley market,” the company said in a statement.

Read more: Silicon Valley – a Landlord’s Data Center Market

Vantage plans to commence construction on the V5 powered shell without an anchor tenant or prelease. Sureel Choksi, the company’s president and CEO, told Data Center Knowledge that he feels confident expanding the existing campus by 40 percent, given the current deal pipeline and lack of supply in the Santa Clara market.

He pointed out the paucity of suitable expansion sites in the area, which is constrained by flood plains, flight paths, and high-speed rail corridors prior to even thinking about the entitlement process. However, the real trick is avoiding man-made disasters.

Most notably, the large data center REITs are now using a phased approach to allocating capital. This has not always been the case in Santa Clara, which up until recently has seen periods of significant oversupply.

Phased and Fully Funded

Vantage’s 21MW expansion will be done in phases, with V5 being built at the existing Vantage campus, while the V6 data center will be built on newly acquired land immediately adjacent. The Vantage design is flexible, and can accommodate wholesale users from 500kW up, offering both N and 2N configurations.

Notably, this expansion is fully funded from the $295 million increase in the company’s credit facility to $570 million, led by RBC Capital Markets, which was announced in February.

Vantage is backed by private equity firm Silver Lake, with $24 billion of assets under management. This gives Vantage the horsepower to compete for customers with the large public REITs active in the Santa Clara market.

The company’s Santa Clara campus is already home to security software giant Symantec, the enterprise Hadoop company Cloudera, and MarkLogic, an enterprise NoSQL database company.

Notable Leases in Silicon Valley: 2015

Jones Lang LaSalle, a brokerage firm with a large data center practice, pegged the total data center absorption in the San Francisco Bay Area/Silicon Valley market at 38MW for 2015. Recently, strong demand estimates for this market have been widely reported by both brokers and landlords.

Leasing activity was brisk last year, which has exacerbated the shortage of large contiguous data center halls in Santa Clara. According to a North American Data Centers report:

  • Vantage leases in Santa Clara included: Microsoft at 10MW and Arista at 3MW, with VMware and Symantec taking 2MW each
  • Alibaba leased 3MW from CenturyLink
  • Amazon Web Services was identified as being CoreSite’s 130,000 SF SV6 build-to-suit, while Uber also took down 4MW with CoreSite in 2015

Subsequently, NADC reported Microsoft had leased 16MW in Santa Clara from DuPont Fabros Technology, which significantly impacted the amount of available space in the market.

Read more: Report Confirms Large Cloud Providers Drive Q1 Leasing

CoreSite signed an 80,000-square foot lease in Santa Clara during Q1 2016 and also announced the acceleration of its final 123,000-square foot phase of SV7.

Read more: CoreSite Shares Spike as Cloud Data Center Leasing Accelerates

What Comes Next?

Vantage is unclear how long this spike in demand from hyperscale public cloud providers will last. Historically, demand for Silicon Valley data center space has come from software firms and content providers that need to have their data centers close to their IT workforce. Santa Clara has not been dependent upon cloud providers for the vast majority of data center absorption.

Choksi also discussed expansion beyond Santa Clara and Quincy, Washington, with Data Center Knowledge. It is essentially a chicken-and-egg proposition. Vantage is looking to leverage existing relationships with customers to hopefully seed the next location, but only in markets which it views as attractive.

During the past couple of years Vantage has come close but has not been able to consummate a deal with the right party to balance development risks. One advantage of being privately held is not having to meet or exceed analyst estimates for growth each quarter.

However, Choksi and his team have certainly noticed the recent success of public REIT competitors. Since Vantage has most of its eggs in one basket, an IPO at this time would not be well received. Expansion into other data center markets could give Vantage and Silver Lake more options moving forward.

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About the Author

Bill Stoller is a financial writer/analyst, seated at Wall St. & Main St. where real estate intersects trends in: technology, retailing, office/industrial, residential, healthcare, energy infrastructure & green initiatives. He covers REITs, real estate and related technology, as well as fintech and real estate crowdfunding. He has written hundreds of investing articles which can be found on Seeking Alpha, Benzinga, Motley Fool, and Investopedia, Finviz and Yahoo! Finance. He often writes about data centers REITs -- a new and growing asset class -- attempting to bridge the gap between technology & traditional REIT investors. You can follow @REalBillStoller on Twitter, Seeking Alpha (http://seekingalpha.com/author/bill-stoller) articles, Tools4Investing (https://www.facebook.com/Tools4Investingcom) on FB, LinkedIn (https://www.linkedin.com/in/realbillstoller), and Google+ (https://plus.google.com/+BillStoller/posts). Bill is a real estate veteran with over 25 years of industry experience, including: general contracting, commercial, office and industrial development. He served as Vice President - Energy Services for Mechanical Services, Inc., a leading mechanical contractor in Central and Southwest Florida, and 1997 Contracting Business magazine Commercial HVAC Contractor of the Year. MSI is now a subsidiary of EMCOR Group, Inc. a Fortune 500® leader in mechanical and electrical construction, energy infrastructure and facilities services.

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  1. Vantage's claim that it is the only provider offering multiple MW of modern colo space in Silicon Valley is incorrect. Colovore currently has capacity and can support a 5 MW requirement and its facility, in fact, is the most modern in Silicon Valley in terms of age. It also offers power densities of 20 kW per rack across its entire data center floor but only charges by the kW consumed.