North America Data Center Outlook - JLL

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1 Data Center Outlook North America | 2014

2 Table of contents National Data Center overview 3 North American Data Center market 6 Local markets Atlanta 7 Chicago 8 Dallas-Fort Worth 9 Houston 10 Los Angeles 11 Minneapolis-St. Paul 12 Northern New Jersey 13 Northern Virginia 14 Phoenix 15 Seattle-Portland 16 Silicon Valley 17 Greater Toronto Area 18 Contacts 19 JLL | North America | Data Center Outlook | 2014 2

3 National Data Center overview Economic picture printing plant into a 400,000 square-foot data center. The deal allows QTS to proceed with an expensive retrofit and still get the returns they Over the last five years, two dynamics have propelled growth in the are targeting. For Chicago, it means job growth and transforming an data center industry: businesses outsourcing their IT infrastructure obsolete building into an economic driver for the city. needs and the popularization of cloud computing. In response to these trends, the North American data center market is expected to see its Industry insight revenue grow by 32.0 percent from 2014 to 2016 to $14.8 billion according to 451 Research. IT spending growth is tracking slower than expected due to increased price competition and the adoption of lower cost, typically cloud-based Cisco forecasts that global data center traffic solutions. Data centers typically account for up to 44.0 percent of overall will triple by 2017 to 7.7 zettabytes, a compound IT spending. According to the Gartner Worldwide IT Spending annual growth rate of 25.0 percent. Forecast, total IT spending in 2014 will top $3.75 trillion worldwide. However, spending growth is expected to accelerate in 2015 as the Approximately 70.0 percent of data center spending goes to transition to digital business concludes and the next phase of personal infrastructure such as servers, networks, storage and energy. The cloud movement infiltrates consumer-focused IT. remaining 30.0 percent is spent on the people needed to manage and operate the increasingly complex data center environment. The rate of IT spending growth is expected to jump 3.7 percent Future employment in the data processing and hosting services next year industry, to which data centers belong, can be used as a leading % Change in worldwide IT spending growth indicator of demand. 3.7% 4.0% 3.6% 3.4% Employment in the data processing & hosting services industry will 3.2% increase by 17.0 percent from 2014 to 2019 3.0% Employment 2.1% 600,000 2.0% 500,000 1.0% 400,000 300,000 0.0% 2014 2015 2016 2017 2018 200,000 Source: Gartner Worldwide IT Spending Forecast, Q2 2014 100,000 As IT budgets increase, so does the need for companies to cut out 0 redundancies and improve efficiency. This dynamic, along with the 2005 2007 2009 2011 2013 2015 2017 2019 increasing connectivity requirements of mobile consumers and workers, Source: IBISWorld, July 2014 has pushed companies away from in-house ownership and management of data centers and toward the multitenant data center market. Data centers have a significant economic impact on the markets within which they operate, especially as revenue and employment within the Demand drivers industry increases. Consequently, taxes and incentives are often used by government entities to lure data center development to specific In addition to the reasons above, companies are leasing third-party data municipalities. These programs provide full or partial exemption of sales center space to: taxes dependent on certain thresholds. For example, Chicago recently Mitigate capital expenditures approved a Class 6B property tax break that grants Quality Eliminate resource intensive maintenance responsibilities Technology Services approximately $11.4 million in property tax Lower facility operating expenses savings in exchange for the conversion of the Chicago-Times Accommodate rapid changes in data and equipment needs 3 JLL | North America | Data Center Outlook | 2014

4 Gain flexible power densities range from colocation hosting to complete turnkey or custom spaces, Access deeper technical expertise and innovations access to the open internet exchange, cloud computing, disaster Free up IT resources to focus on value generating recovery, IaaS and IT services other forms of managed services. business initiatives. As seen in the table below, many of the large providers operate in both In light of some recent high profile data breaches, IT security has gained market segments. There are distinct differences between retail priority for companies, especially those in healthcare, banking and retail. colocation and wholesale colocation in terms of payment structure, cost According to IBM and the Ponemon Institute, 2014 marked a reversal in and support. But the lines are starting to blur as providers seek to costs associated with data breaches. After two years of declines, both differentiate on connectivity and technologies such as open internet the cost of a data breach for organizations and the cost per lost or stolen exchanges gain interest. record have increased. The average cost paid by a company in the U.S. in response to a data breach reached $5.9 million this year. Another dynamic in the third-party provider market is the trend of The uptick in costs is attributed to the additional expenses required to spinning off assets into an REIT and/or going public. Once public preserve a companys brand and reputation following the loss of client or these firms must balance the need to grow with delivering healthy customer information. earnings for stakeholders. QTS Realty Trust went public last year and is currently in expansion mode-buying facilities in New Jersey and Chicago Supply drivers and continuing construction in Texas, Georgia, Virginia and California. In contrast, Digital Realty, which was one of the first to go public in 2001, Todays third-party data center landscape is seeing consolidation among has announced its intent to sell underperforming properties and upgrade large players and new entrants joining the industry. There are hundreds some existing facilities. Both Iron Mountain, Equinix and Windstream of data center providers in North America and while tier 1 markets Holdings Inc. have recently announced that following favorable rulings are dominated by the industrys largest firms, competition exists from the IRS they plan to spin off their real estate assets into an REIT. from smaller players with one or a few facilities. Adding a layer of complexity is the emergence of hybrid offerings and new services that Market segments Retail colocation Wholesale colocation Definition A tenant leases typically between 500 and 5,000 square feet A tenant leases individual white-space rooms typically ranging in of data center space within a cage, cabinet or rack and has size from 5,000 to 50,000 square feet. Historically, the minimum power needs of 250 kW or less. power threshold has been 1 MW but more recently it has dipped down into the 250 kW range. What the tenant gets Full facility maintenance and systems (fire suppression, Typically private suite or cage security, power backup, HVAC, blended internet) Maintenance on fire alarm systems, security systems, Additional services can include: generator, HVAC and UPS system Remote hands technician Greater control and security Network monitoring services Build-to-suit services Carrier-neutral network connectivity Sale-lease-back option Cloud backup and replication Metered electric Typical tenant type A wide range of customers, from Fortune 1000 to small and Companies that need a lot of space and power, want to keep medium-sized businesses costs low, have stringent regulatory standards, need room for expansion at the same facility and/or require a high level of customization Major providers AT&T CoreSite CyrusOne Digital Realty Trust ViaWest DuPont Fabros Telx Sabey Equinix T5 Datacenters QTS Realty Trust QTS Realty Trust Verizon/Terremark Cyrus One Internap Stream Data Center CenturyLink Raging Wire JLL | North America | Data Center Outlook | 2014 4

5 Real estate insight retail are positioned to capture the strongest demand growth. The data center market sees extremely high renewal rates due to the A data center market requires two things: low cost electricity and investment needed to launch a data center and this limits the amount of enormous bandwidth. A tier 1 data center market has this along with low vacant space hitting the market as well. operating costs, fiber availability, low natural disaster risk, accessibility by car and air, attractive government incentives and proximity to Outlook businesses with significant data needs. The top data center markets in North America are: The window of opportunity is open for tenants seeking data center space and solutions. To compete, providers are offering 10.0-15.0 percent North American Data Center market discounts, concessions and tenant improvements on some deals. Tier 1 Data Center markets Emerging Data Center markets However, economic and business indicators point to increasing demand Atlanta Houston and third-party providers are pulling back on construction. By late 2015 Boston Philadelphia and early 2016, leverage will shift toward providers and costs will start to Chicago Miami trend upward. Dallas Toronto Los Angeles Denver Market outlook New York/New Jersey Baltimore Northern Virginia San Diego Atlanta Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Phoenix Charlotte Chicago Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 San Francisco/Silicon Valley Cincinnati Seattle Las Vegas Dallas-Fort Worth Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Source: 451 Research Minneapolis Houston Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 The data center market is seeing very competitive pricing due to the Los Angeles Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 large number of options available to tenants in todays market. With the Minneapolis / St. Paul Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 exception of Houston and Toronto, most of the data center markets Northern NJ Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 are tenant-favorable and will remain so through late 2015. While leasing activity has been strong, third-party providers have been Northern Virginia Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 aggressive with new development and construction largely surpassing Phoenix Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 demand over the past three years. As a result, there has been a softening in rates in the past 12 to 18 months. Sublease space in Seattle-Portland Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 markets such as Silicon Valley and Northern Virginia added additional Silicon Valley Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 supply to the market as well and further reduced leverage for some Greater Toronto Area Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 providers. Subleasing data center space can be difficult due to a short term remaining on leases, the need for the subtenant to have a tri-party User favorable market agreement with the landlord and no visibility of extension rights. Neutral market Therefore, while sublease space does directly compete with direct stock Provider favorable market it does so to a lesser degree than seen in the traditional office real estate market. The provider landscape will see continued consolidation especially Today, the focus of providers is leasing up existing inventory and across borders as third-party providers look to grow through strategic improving return on invested capital (ROIC). Looking forward, new acquisitions. The purchase of Peak 10 by GI Partners, one of the largest inventory will be delivered just-in-time where a shell is ready to private equity players in the data center market, to fuel aggressive go but not built out until a lease is in place. Providers will also be expansion plans is an example. Another example is the acquisition made seeking to maintain low cost-to-build with the largest data center by Canadian company Shaw Communications of ViaWest to rapidly gain companies averaging $7 million or less per megawatt on a fully a significant share of the North American market. developed mega site. Once the construction pipeline is absorbed, rental rates will firm quickly and companies will have less negotiating room with providers. There is a lot of organic growth in the data center market since tenants typically need more power and space as technology evolves. This is fueling the expansion of existing leases. Markets with a high concentration of tenants in energy, healthcare, finance, technology and JLL | North America | Data Center Outlook | 2014 5

6 The North American data center market is expected to grow by 32.0% to $14.8 billion from 20142016 INDUSTRY TECHNOLOGY 2014: By 2016: 74% of adults use social networking 2014: 50% 51% of U.S. healthcare systems 3x of all workloads will be will use cloud storage processed in the cloud In 2014: In 2017: Global data center U.S. retail traffic will triple to e-commerce sales increased 7.7 Zb 15.7% CORPORATE By 2018: Global market for 87% of American adults use cloud equipment the internet and 68% connect will reach $79.1B via mobile devices Financial firms Companies are moving away from internal IT management account for 16% of data center revenue Outsourcing data center functions is less expensive and improves efficiency In 2014: U.S. companies paid an average of $5.9M for data breaches JLL | North America | Data Center Outlook | 2014 6

7 Atlanta Supply Demand Rental rates Total inventory: 1.5 M s.f. / 150 MW Net absorption: 11.0 MW < 250 kW: $235 - $375/kW (all in) Total commissioned vacant: 117,000 s.f. / 18 MW Under construction: 40,000 s.f. / 7 MW >250 kW: $125-$150/kW (+E) Planned: 160,000 s.f. / 18 MW Data center overview Outlook Supply is being absorbed at a much faster rate now compared to for Users previous years in Atlanta. QTS is adding space at both their metro and Increasing supply in retail and wholesale categories. their Suwanee facilities. Peak 10 is delivering their first pod in their new Aggressive pricing and ramp structures continue in 2014. Alpharetta facility in September. Demand is coming from all industries (insurance, financial, technology, for Providers hospitality, healthcare etc.). Several significant investment opportunities on the market including Utility rates in the southeast remain very attractive in the $.047 range. E*Trades data center and GEs data center in Alpharetta. Several providers considering new builds of wholesale and retail space, GA Power is investing in a large nuclear power plant, and the forecast some looking for anchor tenants to kick off a new building including QTS, calls for stable, competitive rates in the future. Bytegrid, Equinix, Telx, Peer1 and Digital Realty Trust . Overall employment growth, corporate headquarter relocations, and User favorable market regional office expansions are contributing to an improving economy Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Provider favorable market which directly benefits providers of data center space. Multiyear electricity | Average power rate 8.0 6.2 5.5 Cost per kW 6.0 4.85 4.8 4.7 4.0 2.0 User demand by industry 0.0 2010 2011 2012 2013 2014 Financial& Banking 2014 significant data center transactions Financial 30.0% 30.0% Services Healthcare Telecom 15.0% Fortune 500 Financial Technology Company Software Company 25.0% T5 QTS QTS Technology 1.5 MW ~8 MW 1 MW JLL | North America | Data Center Outlook | 2014 7

8 Chicago Supply Demand Rental rates Total inventory: 3.3 M s.f. / 420 MW Total commissioned vacant: 147,000 s.f. / 17 MW Net absorption: 5.0 MW < 250 kW: $175-$350/kW (all in) Under construction: 734,595 s.f. / 118 MW >250 kW: $125-$150/kW (+E) Planned: 1,379,747 s.f. / 201 MW Data center overview Outlook Supply has increased significantly in 2014 with providers including for Users QTS, Forsythe, DFT, ByteGrid and Ascent all commencing construction Well funded / sophisticated operators competing hard to fill on significant projects. There has been an equal amount of new new deliveries. deliveries in Chicagos two markets with QTS and Ascent building Aggressive pricing and ramp structures continue in 2015. downtown while Forsythe, ByteGrid and DFT build in the suburban Pricing on leases < 250 kW seeing historic low rents under $180 / kW. market. This development is driven by the high occupancy rates and for Providers success of DLR (350 Cermak and Franklin Park), Coresite (427 S LaSalle) and Ascent (505 Railroad). Also fueling this trend is Chicagos Providers proactively courting tenants to anchor new developments. Spec suites will continue to be the best opportunity for success. continued recognition as a global destination for business, low utility Aggressive ramps and flexibility in leases can be expected in buildings costs, excellent fiber and limited natural disaster risk. with high vacancy rates. Demand reflects the diversity of Chicago business environment with Rents will stay low and decrease in 2015 as new developments deliver. User favorable market demand coming from technology companies, law firms, financial / Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Provider favorable market trading firms, manufacturing, insurance and healthcare. Multiyear electricity | Average power rate In response to natural disaster risk mitigation, there is an uptick in national searches focused on the central U.S. and Chicago in particular. 7.0 6.5 6.5 Headcount growth at companies like Google, HSBC, Walgreens Cost per kW 6.5 and Gogo continues to position Chicago as a hub to recruit skilled 6.0 6.0 technical staff. 6.0 5.5 5.5 User demand by industry 5.0 Technology 2010 2011 2012 2013 2014 10.0% 15.0% Telecom 2014 significant data center transactions 10.0% Retail & E-commerce 15.0% Banking & Financial Services 10.0% Healthcare 40.0% Abbvie NextWave SingleHop CenturyLink Latisys DLR Franklin Park Insurance 2 MW 300 kW 2 MW JLL | North America | Data Center Outlook | 2014 8

9 Dallas Fort Worth Supply Demand Rental rates Total inventory: 2.7 M s.f. / 361 MW Total commissioned vacant: 241,600 s.f. / 23 MW Net absorption: 25.5 MW < 250 kW: $250-$350/kW (all in) Under construction: 155,000 s.f. / 25 MW >250 kW: $125-$150/kW (+E) Planned: 592,000 s.f. / 80 MW Data center overview Outlook Supply has been absorbed (25.5 MW) at a rate faster than any other for Users year on record in DFW as of Q2 2014. Both CONE and QTS are Small window in 2014 with deficit in supply. delivering in the third quarter. T5 will deliver 3.5 MW by year-end and Aggressive pricing and ramp structures continue in 2014. DataBank another 1.5 MW. DLR is site ready in Richardson for a single- Power costs might increase slightly at the end of 2014. story 10 MW or two-story 22.5 MW building but hasn't commenced for Providers construction on the shell. Providers racing to get inventory to market. Demand is coming from all industries (insurance, financial, technology, Users will expect rent ramps to offset consolidation costs. hospitality, etc.) with over 50 MW of requirements in the marketplace. Price compression will be less than 5.0 percent in 2014 (annual average This demand is driving existing data center providers and new data is 7.0 percent). entrants to consider Dallas for expansion. As utilities become more important in the central and southwestern Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 User favorable market Neutral market United States, providers are locking in on longer-term fixed electrical Provider favorable market pricing. Oncor delivered six new generation plants in August. Multiyear electricity | Average power rate Overall workforce growth, corporate headquarter relocations, and regional office expansion in DFW have created a significant demand for 7.5 7.2 7.0 more data center supply. 7.0 Cost per kW 6.5 6.0 6.0 6.0 5.8 5.5 User demand by industry 5.0 Technology 2010 2011 2012 2013 2014 Telecom 2014 significant data center transactions 25.0% Retail & E-commerce 35.0% 5.0% Banking & Financial Services 5.0% Healthcare 10.0% 20.0% Seattle Wireless Co. San Ant Insurance Co. San Fran SaaS Co. Insurance T5 CyrusOne QTS 3.5 MW 1 MW 3 MW JLL | North America | Data Center Outlook | 2014 9

10 Houston Supply Demand Rental rates Total inventory: 620,600 s.f. Net absorption: 8.1 MW < 250 kW: $260-$360/kW (all in) Total commissioned vacant: 74,500 s.f. / 9.8 MW >250 kW: $140-$160/kW (+E) Under construction: 144,000 s.f. / 24.00 MW Planned: 527,484 s.f. / 62.20 MW Data center overview Outlook Supply has been absorbed (~8 MW) at a stable rate, much of which is for Users explosive growth of HPC (high performance computing) environments. Small window in 2014 with deficit in supply. New supply is being built-out with CyrusOne delivering 44,000 square Pricing will compress 1Q15 with new supply on line. feet with runway for significantly more space. Data Foundry will bring Power costs might increase slightly to the end of 2014. online a 250,000-square-foot building in 2015 with up to 50 MWs of future capacity available. for Providers Demand is coming from all industries due to the significant population Providers racing to get inventory to market. and job growth in the Houston market. The largest demand is still Users will expect rent ramps to offset migration costs. coming from the oil and gas sector as technology is critical to drilling Price compression will be more than 5.0 percent in 2015. and exploration efforts. Demand is also coming from healthcare and Tenant-favorable market financial services industries. This demand is driving existing Houston Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Landlord-favorable market data center providers and new data entrants to consider Houston for additional expansion. Multiyear electricity | Average power rate As HPC becomes more important to the exploration of oil and gas, companies are outsourcing more of this technology to colocation 9.0 8.1 operators that can handle the high density computing environments Cost per kW 8.0 needed to run seismic data. 6.9 6.9 6.7 7.0 6.6 6.0 User demand by industry 5.0 Oil & Gas 2010 2011 2012 2013 2014 5.0% Telecom 2014 significant data center transactions 20.0% Retail & E-commerce 45.0% Banking & Financial Services 20.0% Healthcare CyrusOne CyrusOne Stream 5.0% 5.0% Insurance Web Hosting Industry Oil & Gas Industry Oil & Gas Industry 1.5 MW 900 kW 1.3 MW JLL | North America | Data Center Outlook | 2014 10

11 Los Angeles Supply Demand Rental rates Total inventory: 4.0 M s.f. / 210 MW Net absorption: < 250 kW: $215-$275/kW (all in) Total commissioned vacant: 480,000 s.f. / 25 MW 5.0 M 7.0 M MW >250 kW: $135-$145/kW (+E) Under construction: 0 s.f. / 0 MW Planned: 0 s.f. / 0 MW Data center overview Outlook There has been no lack of supply as users have plenty of choices for Users within the Los Angeles area. El Segundo continues to be the primary Plenty of options in the market. choice as options are limited in Downtown Los Angeles. Entertainment and technology will continue to drive transaction activity. Demand in Los Angeles remains weak as users have decided to focus on other markets like Phoenix and Las Vegas. However, the growth of social media and entertainment will keep the market stable. for Providers Providers continue to compete for tenants. One Wilshire is 100.0 percent occupied which is forcing users to Aggressive pricing structures exist due to lack of demand. look elsewhere. Average deals are 25-50 KW. Colocation providers continue to search for new opportunities to Tenant-favorable market expand the demand of small users. Los Angeles has become a market Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Landlord-favorable market of small users that are dealing with organic growth. Electric power rates have remained steady over the last few years at Multiyear electricity | Average power rate around $0.13 per kW. In some markets, Southern California Edison and Burbank Water and Power offer rates as low as of $0.8 per kW. In 2015, 15.0 13.0 13.0 13.0 13.0 13.0 power rates are expected to jump to around $0.15 cents per kW. 13.0 Cost per kW 11.0 9.0 7.0 User demand by industry 5.0 2010 2011 2012 2013 2014 Technology 25.0% Telecom 2014 significant data center transactions 35.0% Retail & E-commerce 5.0% Banking & Financial Services 5.0% Healthcare 10.0% Media & LAX Airport SpaceX T5 20.0% T5 Internap Anonymous enterprise Entertainment 1 MW 500 kW 2 MW JLL | North America | Data Center Outlook | 2014 11

12 Minneapolis/St. Paul Supply Demand Rental rates Total inventory: 302,139 s.f. / 40 MW Net absorption: 2.2 MW < 250 kW: $250-$350/kW (all in) Total commissioned vacant: 88,500 s.f. / 12 MW >250 kW: $145-$190/kW (+E) Under construction: 30,000 s.f. / 4 MW Planned: 131,000 s.f. / 17 MW Data center overview Outlook Supply is at an all-time high as the Twin Cities has seen unprecedented for Users development of new facilities by regional and national colocation Supply and options are at an all-time high. providers. Stream Data Centers, ViaWest and CenturyLink Technology Aggressive pricing and ramp structures because of new product influx. Solutions have commissioned a combined 75,000 raised floor square Ability for smaller users to get tax rebates through qualifying colo facilities. feet or 10 MW of data center space in new, purpose-built facilities since the first of the year. Additionally, a fourth provider, DataBank, is for Providers currently under construction on their new 90,000-square-foot facility New entrants to market will taper as product comes online. which is expected to deliver 1.5 MW in the first quarter of 2015. Users will expect tax incentives and a variety of options. Demand is increasing now that there are numerous options for both Pricing will compress as more product hits market. retail and wholesale colocation within the Twin Cities marketplace. Prior Tenant-favorable market to this year, colocation options for requirements over 250 kW were Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Landlord-favorable market extremely limited. Recently passed data center tax incentives allow tenants of qualifying Multiyear electricity | Average power rate colocation facilities a sales tax abatement on all power costs and a sales tax rebates on all hardware and software purchases. This is one of the most aggressive incentives in the country and has begun to put 7.0 6.5 6.8 6.8 6.5 6.3 Cost per kW Minneapolis/St. Paul on the map for out-of-state companies looking for 6.5 colocation space. 6.0 5.5 User demand by industry 5.0 2010 2011 2012 2013 2014 Technology 6.0% 2014 significant data center transactions Telecom 31.0% Retail & E-commerce 37.0% Manufacturing 10.0% Healthcare FICO Ucare Essentia Health 3.0% 13.0% CenturyLink Unisys Involta Insurance 300 kW 150 kW 400 MW JLL | North America | Data Center Outlook | 2014 12

13 Northern New Jersey Supply Demand Rental rates Total Inventory: 3.2 M s.f. / 324MW Net absorption: 5.0 MW < 250 kW: $190-$300/kW (all in) Total commissioned vacant: 256,000 s.f./28MW > 250 kW: $105-$175/kW (+E) Under construction: 186,000 s.f. / 21MW Planned: 876,000s.f. / 104MW Data center overview Outlook Supply has nearly doubled over the past 24 months with new colocation for Users facilities opening throughout the region. This along with other factors is Supply is outpacing demand. putting downward pricing pressure on both wholesale and retail Historical low rates quoted. colocation rental rates. Currently JLL is tracking more than 100,000 Continued downward pressure on cost and risk. square feet of either recently completed or under construction wholesale grade product. for Providers Demand leveled off during the first half off 2014 after a strong 2013. But Increased competition by new providers. Supply at an all-time high. recent trends have indicated a new momentum in demand coming from Just takes a few deals to level market. the historically active sectors including financial services, healthcare and Occupiers looking for low cost alternatives for less critical data. pharmaceuticals. In addition to these traditional players, new sectors such as media, bitcoin and internet content providers have entered the User favorable market NY-Metro market with some regularity. Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Provider favorable market As power contracts renew, users and colocation providers are Multiyear electricity | Average power rate benefiting from lower electricity rates, along with hedging practices. 15 11.0 9.0 8.5 8.5 9.0 Cost per kW 10 5 User demand by industry 0 2010 2011 2012 2013 2014 7.0% 8.0% Technology 3.0% 2014 significant data center transactions Banking & Financial Services Media & Entertainment Healthcare Bitcoin Company Financial Services Financial Services 84.0% IO Sentinel Data Center Digital Realty 2.5 MW 1.5 MW 3 MW JLL | North America | Data Center Outlook | 2014 13

14 Northern Virginia Supply Demand Rental rates Total inventory: 2.4 M s.f. / 498.3 MW Net absorption: 19.4 MW < 250 kW: $235-$320/kW (all in) Total commissioned vacant: 605,263 s.f. / 115.9 MW >250 kW: $120-$140/kW (+E) Under construction: 107,400 s.f. / 20.8 MW Planned: 882,150 s.f. / 176.2 MW Data center overview Outlook Market confluence is dominated by new supply offerings with major for Users developments under way by CyrusOne, DFT, DLR and CoreSite. QTS Market leader for cloud computing with best in class latency. will deliver a 1.3 million-square-foot/100 MW facility in Richmond. This Historic pricing and concessions continue well into 2015. will undoubtedly provide meaningful power and space options over the Power costs remain steady and predictable. coming quarters. Limited powered shell building options. Sublease space adds pressure for third-party providers with more than for Providers 30 MWs of inventory. Price compression will continue into 2015 as supply imbalance dominates market fundamentals. Technology dominates demand and is the force driving new Competition will force aggressive pricing, concessions and deal velocity. deployments. But there is continued demand across all Competition widens with new market entries and comprehensive industry segments. service offerings. User favorable market Utilities rates are stable and very cost competitive compared to Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Provider favorable market Tier 1 MSAs. Multiyear electricity | Average power rate While overall employment growth is weak compared to historical norms, demand for data center workers has accelerated. The region is 6.5 home to a skilled knowledge based IT workforce. 6.0 6.1 6.0 Cost per kW 6.0 5.8 5.7 5.5 User demand by industry 5.0 Aerospace & Defense 2010 2011 2012 2013 2014 11.0% Banking & Financial Services 2014 significant data center transactions Government 12.0% Healthcare 53.0% 15.0% Insurance 1.0% Retail & E-commerce 2.0% GoDaddy PNC. Level3 Powered Shell - 5.0% Technology & DFT ACC7 QTS Purchase Telecom 2.8 MW 4 MW 50,000 s.f. JLL | North America | Data Center Outlook | 2014 14

15 Phoenix Supply Demand Rental rates Total inventory : 1.3 M s.f. / 174 MW Net absorption: 22.7 MW < 250 kW: $250-$325/kW (all-in) Total commissioned vacant: 120, 000 s.f./ 16 MW Under construction: 81,000 s.f. / 16 MW > 250 kW: $130-$150/kW (+E) Planned: 251,000 s.f. / 40 MW Data center overview Outlook Supply continues to see significant growth as a majority of West Coast- for Users based companies consider metropolitan Phoenix valley as one of the Deficit in supply until CyrusOne delivers new facility in the fourth quarter. top five markets for their data center needs. Recent supply in the valley Aggressive pricing and ramp structures will tighten up. has been absorbed quickly by telecom and technology companies and Continued attraction to the market due to AZ Data Center Tax Exemption. this has put pressure on providers to build new colocation facilities. National providers such as QTS, Ascent and Switch are strongly for Providers considering new entry into the Phoenix market. Race to deliver new inventory to the market (CyrusOne, PhoenixNAP). Demand has been modest during the first half of 2014, following strong Users will expect rent ramps to offset consolidation costs. activity in 2013. Market trends indicate price stabilization on lease and Price increase will include additional services going into 2015. purchase rates for wholesale colocation facilities. Technology companies in the metropolitan Phoenix valley are experiencing global User favorable market and local growth and this fuels organic demand. Tenants continue to Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Provider favorable market seek maximum flexibility in colocation facilities as enterprises try to avoid overcommitting power. Multiyear electricity | Average power rate Power costs remain an intriguing factor to influence out-of-state 6.8 6.6 6.6 enterprises to relocate to Arizona. Longer-term contracts between 6.6 6.5 Cost per kW utility companies and colocation providers is an upward trend in the local market. 6.4 6.3 6.2 6.2 User demand by industry 6.0 2010 2011 2012 2013 2014 Retail & E-commerce 10.0% 20.0% Technology 2014 significant data center transactions 15.0% Banking & Financial Services Telecom 20.0% 15.0% Healthcare Bitcoin Company CenturyLink Banking Software Co. 20.0% Insurance CyrusOne IO Digital Realty 8 MW 9 MW 1.35 MW JLL | North America | Data Center Outlook | 2014 15

16 Seattle-Portland Supply Demand Rental rates Total inventory: 2.5 M s.f. / 312 MW Net absorption: 15.0 MW < 250 kW: $200-$300/kW (all in) Total commissioned vacant: 595,105 s.f. / 86 MW Under construction: 42,100 s.f. / 8 MW >250 kW: $125-$145/kW (+E) Planned: 259,000 s.f. / 36 MW Data center overview Outlook There is a major increase in data center activity in the Seattle- for Users Portland area. Few options for large requirements in Seattle; abundance of availability for smaller users (

17 Silicon Valley Supply Demand Rental rates Total inventory : 3.6 M s.f. / 348 MW Net absorption: 20.5 MW < 250 kW: $250-$325/kW (all-in) Total commissioned vacant: 73,000 s.f./ 16 MW Under construction: 44,000s.f. / 9 MW > 250 kW: $125-$140/kW (+E) Planned: 384,000 s.f. / 58 MW Data center overview Outlook Supply, Inventory levels have dropped to a historically low level of for Users turnkey product and although many projects are planned most have yet Supply will be constrained by years end and until Dupont Fabros and begun construction. Absorption in Q2 and Q3 was above average with Coresite bring additional capacity online. multi megawatt deals being signed by cloud providers and software Pricing has stabilized and is beginning to trend upwards companies and has stabilized the rental rates and put increased Larger contiguous space will be difficult to obtain in the Silicon Valley pressure on certain providers to build new powered shell and for Providers turnkey product. Providers like Coresite, Vantage and Dupont Fabros will have an Demand, has been consistent in 2014 and has seen increased activity opportunity to take up marketshare with new construction projects over 2013. Low inventory levels and a lack of construction suggest Users will expect rent ramps to offset consolidation costs pricing corrections on wholesale and colocation leasing rates. Local Price increase will drive customers to other states. technology companies, mobile applications and cloud requirements will User favorable market continue to drive organic growth. Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Provider favorable market Power, costs in Santa Clara (SVP) remain the lowest in the region and Multiyear electricity | Average power rate is the driving factor in the success in this market. Power rates are $0.2 to $0.05 per kwh less than PG&E and makes for an important factor to 15.0 keep local companies from moving to other regions. 9.4 9.8 10.3 8.9 Cost per kW 10.0 8.3 5.0 User demand by industry 0.0 2010 2011 2012 2013 2014 10.0% Retail & E-commerce 20.0% 2014 significant data center transactions Technology 15.0% Financial Services 20.0% Telecom 15.0% Healthcare Microsoft Alibaba Navisite . 20.0% Insurance Dupont Fabros Coresite Digital Realty 6 MW 3 MW 3.6 MW JLL | North America | Data Center Outlook | 2014 17

18 Greater Toronto Area (GTA) Supply Demand Rental rates Total inventory: 1.5 M s.f/ NA MW Net absorption: 5 MW 250 kW : $150-$190/kW (+E) Under construction: NA s.f. / 2 MW Planned: 489,000 s.f. / 101 MW Data center overview Outlook Supply both across Canada and within the Toronto and Southern for Users Ontario area has historically been limited. Recent successful data Significant number of planned opportunities. center developments have helped amplify interest from both Flight to improved Tier level projected with new options coming to market. international and domestic data center operators. Power costs projected to increase which should translate into additional demand for reduced PUE and data center efficiencies. Demand is coming from all industries (insurance, financial, technology, hospitality, etc.). for Providers Current planned data center premises forecast for potential occupancy Providers racing to get inventory to market. within the next 24 months could have a significant impact on future Significant future competition is forecast to increase pressure on pricing pricing metrics. and data center efficiencies. Tenant-favorable market Pressure on pricing and quality of infrastructure for existing providers Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Neutral market Landlord-favorable market is forecast. New data centers currently being planned are expected to offer Multiyear electricity | Average power rate significant competition within a market that has historically seen limited new supply. 10.0 8.9 9.0 Cost per kW 7.9 8.0 7.5 7.0 6.6 6.0 User demand by industry 6.0 5.0 Banking & Financial 2010 2011 2012 2013 2014 2.0% Services 8.0% 2014 significant data center transactions Healthcare 11.0% 45.0% Insurance 12.0% Telecom Retail & E-commerce 22.0% Soft Layer Digital Realty Technology Firm Cologix Manufacturing 2.5 MW 300 kW JLL | North America | Data Center Outlook | 2014 18

19 Contacts For more information, please contact: Jeff Groh Houston +1 703 485 8833 Americas Research Bo Bond [email protected] Lauren Picariello +1 214 438 6238 +1 617 531 4208 [email protected] Minneapolis/St. Paul [email protected] Brett Severson Ali Greenwood +1 612 217 5143 Atlanta +1 214 438 6237 [email protected] Mike Dolan [email protected] +1 404 995 2432 Brian Ginkel [email protected] Curt Holcomb +1 612 217 5127 +1 214 438 6240 [email protected]jll.com Ryan Fetz [email protected] +1 404 995 2132 Phoenix [email protected] Los Angeles Mark Bauer Darren Eades +1 602 282 6259 Chicago +1 213 239 6061 [email protected] Matt Carolan [email protected] +1 312 228 2513 Mark Stratman Jr [email protected] Jordan Gaffney +1 602 282 6260 +1 213 239 6041 [email protected] Andy Cvengros [email protected] +1 312 228 3202 Greater Toronto Area [email protected] Northern New Jersey Stuart Cox Jon Meisel +1 416 525 4132 Sean Reynolds +1 973 404 1475 [email protected] +1 312 228 3091 [email protected] [email protected] Seattle-Portland Sumner Putnam Conan Lee Dallas Fort Worth +1 973 404 1513 +1 206 607 1723 Bo Bond [email protected] [email protected] +1 214 438 6238 [email protected] Thomas Reilly Danny Jackson +1 973 404 1476 +1 206 607 1798 Ali Greenwood [email protected] [email protected] +1 214 438 6237 [email protected] Northern Virginia Silicon Valley Allen Tucker Chris Sumter Curt Holcomb +1 703 891 8396 +1 650 354 3346 +1 214 438 6240 [email protected] [email protected] [email protected] JLL | North America | Data Center Outlook | 2014 19

20 About JLL JLL (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $4.0 billion, JLL operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 3.0 billion square feet. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management. For further information, visit www.jll.com. About JLL Data Center Solutions JLLs global Data Center Solutions team has delivered customized data center services and strategies to many of the worlds largest corporations. With the expertise of having managed 1110 megawatts of critical facilities transactions, our team assists companies with total site selection (from greenfield to colocation to cloud) utilizing best in class due diligence, in-depth TCO analysis and comparisons, risk and infrastructure assessments, project development services, migration consulting, contract and SLA negotiations, and budget preparations. Our capital markets group has deep experience in the data center industry from investment property sales to debt financing and our critical facilities management team oversees 92 million square feet of critical environments. We understand the technical elements that are crucial to your facility in terms of power, cooling, fiber, latency, utilities, redundancy, taxes, construction, public incentives and security. JLLs Data Center Solutions team will help you determine the best IT and data center strategy to meet your business objectives. About JLL Research JLLs research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate todays commercial real estate dynamics and identify tomorrows challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc. COPYRIGHT JONES LANG LASALLE IP, INC. 2014

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