Microsoft has bought a large plot of land in real estate-constrained Silicon Valley where it appears to be planning to build a data center.
The company paid $73.2 million for the 65-acre site, planned as a mix of light-industrial and data center use, San Jose Mercury News reported. One of the two development options would permit for development of a 437,000-square foot data center, and statements by city and company officials indicate that the company’s plan is to exercise that option.
San Jose Mayor Sam Liccardo was quoted as saying the city welcomed “Microsoft’s substantial investment in San Jose, as it seeks to meet the world’s burgeoning demand for cloud capacity.”
Another person quoted was Christian Belady, who as general manager of Microsoft Cloud Infrastructure and Operations is one of the top data center decision makers at the company. Belady said:
We continuously explore opportunities to meet the needs of a future based on cloud computing and internet services, so we’re thrilled to find a great one in the heart of Silicon Valley.
Historically, hyper-scale cloud providers like Microsoft have chosen to lease wholesale space in top data center markets like Silicon Valley from the likes of Digital Realty Trust, CoreSite, or Vantage Data Centers. But wholesale options have been extremely limited in Silicon Valley, where virtually all completed data center space is occupied, and where a shortage of land makes it difficult for developers to increase supply.
Here’s what analysts from the real estate brokerage CBRE wrote about the state of the Silicon Valley data center market in a recent research report:
Market activity in Silicon Valley remains relatively handcuffed by a limited number of available wholesale options and scant opportunities for the addition of new supply. The vacancy rate remained near its historical low at midyear, inching up to 5.3% from 4.5% in Q4 2016 and representing only 9MW of existing available wholesale capacity. More than 50% of this vacant capacity is available in second-generation facilities that are more than five years old and often viewed as technologically obsolescent.
The land deal with Microsoft is a win for San Jose; most Silicon Valley data center construction typically takes place in nearby Santa Clara, where the municipal utility Silicon Valley Power provides lower energy rates than the private utility PG&E, which serves San Jose and the rest of the San Francisco Bay Area.