The short answer is Microsoft. The second-largest cloud service provider signed six of last year’s largest wholesale data center leases with five landlords in five markets, according to the latest market report by the commercial real estate firm North American Data Centers.
Microsoft and to a lesser extent Oracle together were responsible for a 25-percent increase in leasing activity from 2015. According to NADC, that increase represents a “historical high.”
Cloud providers and other tech companies with hyperscale internet platforms have completely changed the dynamics of the data center services market in recent years in the US and beyond. As they race to expand capacity, the likes of Microsoft, Amazon Web Services, Uber, and Oracle have created supply shortages in top US markets, driving unprecedented growth in the wholesale data center business. Wholesale market growth now outpaces growth in retail colocation, according to a recent report by Structure Research.
Here are the 10 biggest data center leases signed in 2016, according to North American Data Centers:
- Microsoft: 35 MW with CloudHQ in Manassas, Virginia
- Microsoft: 30 MW with EdgeConneX in Elk Grove Village, Illinois
- Microsoft: 22 MW with CyrusOne in Ashburn, Virginia
- Microsoft: 16 MW with DuPont Fabros Technology in Santa Clara, California
- Microsoft: 13.5 MW with CyrusOne in Phoenix, Arizona
- Microsoft: 9 MW with CyrusOne in San Antonio, Texas
- Oracle: 6 MW with CyrusOne in Sterling, Virginia
- Salesforce: 6 MW with QTS in Dallas, Texas
- Oracle: 5 MW with CyrusOne in Ashburn, Virginia
- Oracle: 5 MW with Digital Realty Trust in Ashburn, Virginia
Why AWS Isn’t on the List
The company most obviously missing from NADC’s report is AWS, the chief rival to Microsoft (and really anybody in cloud or any other IT infrastructure outsourcing business). That’s because Amazon doesn’t generally lease a typical wholesale data center product, Jim Kerrigan, managing principal at NADC and the report’s author, told Data Center Knowledge in an interview.
Amazon did a lot of deals in 2016, especially in Northern Virginia, the country’s hottest and largest data center market, but the company doesn’t lease data centers that are already fit out with electrical and mechanical infrastructure. It leases powered-base buildings – building that are connected to electrical feeds, have access to fiber-optic infrastructure and all the planning permissions in place. The company usually fits the space out with all the necessary data center infrastructure on its own.
Since Amazon is extremely secretive about its cloud data centers, it’s impossible to tell with full certainty that any particular lease it signed was for a data center and not, say, for offices or a distribution center, Kerrigan explained. Because the deals are not typical data center leases, the company’s rates are much lower, making it even harder to deduce what any particular building will be used for.
Microsoft Leasing on Hold, for Now
While Microsoft’s leases are clearly for data center use, what is unclear is which of its many services the facilities will support. Be it Azure, Office 365, or Xbox, these services require a hyperscale data center platform.
All in all, Microsoft leased 125.5 MW of data center capacity last year across Northern Virginia, Chicago, Silicon Valley, Phoenix, and San Antonio markets. Its biggest deal – and the biggest single data center lease signed in 2016 – was for 35 MW in Manassas, Virginia, with CloudHQ, a new company launched by Hossein Fateh, co-founder and former CEO of DuPont Fabros Technology, a long-time wholesale data center provider and one of the biggest players in Northern Virginia.
Microsoft’s second-largest deal was for 30 MW with EdgeConneX in Elk Grove Village, Illinois, outside of Chicago. This was also the second-largest deal of the year. More on this deal here: With Microsoft Data Center Deal, EdgeConneX Takes on Wholesale Giants
The company is not expected to continue leasing data center space at the same rate as it did in 2016, however. “They did put all of US on hold at the end of the year,” Kerrigan said, adding however that it’s always hard to tell how long such a hold may last.
Oracle Ramps Up Data Center Leasing
If Microsoft has leased so much data center space that it has to take a pause, Oracle, a newcomer to the world of hyperscale cloud data center leasing, is just getting started. Last year saw a burst of leasing activity by Larry Ellison’s enterprise software giant that is now investing a ton of money into its effort to take on Amazon and Microsoft in the cloud services market.
The company hired many of the same people that worked on building Amazon’s, Microsoft’s, and Google’s cloud platforms to design its own platform. Oracle launched the new cloud platform in the second half of last year, starting with a single availability region served out of three data centers in the Phoenix market.
It signed seven wholesale data center leases in 2016, totaling more than 30 MW. The bulk of this capacity is in four Northern Virginia data centers with three different providers: CyrusOne, Digital Realty Trust, and RagingWire. This capacity apparently supports the new Virginia availability region, one of three the company announced Tuesday. The other two are in the UK and Turkey.
More on Oracle’s new cloud platform and data center strategy here: Oracle’s Cloud, Built by Former AWS, Microsoft Engineers, Comes Online
Construction Not Keeping Up With Demand
The rate of wholesale data center leasing by cloud and internet giants is spurring concerns of supply shortages in the four top markets – Northern Virginia, Chicago, Dallas, and Silicon Valley – as construction has not been able to keep up with demand.
The difference in total supply between 2015 and 2016 was incremental, while 2016 saw record-breaking leasing in Chicago and Virginia, Kerrigan said; there was more capacity under construction across the country in 2015 than there was in 2016.
“Lack of product in Virginia and Chicago could really hurt,” he said. “Supply creates demand.”
You can read North American Data Centers' full 2016 market report and 2017 forecast here.