JLL North America Data Center Overview 2014

Data Center Outlook
North America | 2014
Table of contents
National Data Center overview
North American Data Center market
Local markets
Atlanta
Chicago
Dallas-Fort Worth
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
National Data Center overview

Economic picture
Over the last five years, two dynamics have propelled growth in the
data center industry: businesses outsourcing their IT infrastructure
needs and the popularization of cloud computing. In response to these
trends, the North American data center market is expected to see its
revenue grow by 32.0 percent from 2014 to 2016 to $14.8 billion
according to 451 Research.
Cisco forecasts that global data center traffic

will triple by 2017 to 7.7 zettabytes, a compound
annual growth rate of 25.0 percent.
Approximately 70.0 percent of data center spending goes to
infrastructure such as servers, networks, storage and energy. The
remaining 30.0 percent is spent on the people needed to manage
and operate the increasingly complex data center environment.
Future employment in the data processing and hosting services
industry, to which data centers belong, can be used as a leading
indicator of demand.
Employment in the data processing & hosting services industry will
increase by 17.0 percent from 2014 to 2019
600,000
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
are targeting. For Chicago, it means job growth and transforming an
obsolete building into an economic driver for the city.
Industry insight
IT spending growth is tracking slower than expected due to increased
price competition and the adoption of lower cost, typically cloud-based
solutions. Data centers typically account for up to 44.0 percent of overall
IT spending. According to the Gartner Worldwide IT Spending
Forecast, total IT spending in 2014 will top $3.75 trillion worldwide.
However, spending growth is expected to accelerate in 2015 as the
transition to digital business concludes and the next phase of personal
cloud movement infiltrates consumer-focused IT.
The rate of IT spending growth is expected to jump 3.7 percent
next year
% Change in worldwide IT spending growth
3.7%
4.0%
3.6%
3.4%
3.2%
3.0%
Employment
2.1%
2.0%
500,000
1.0%
400,000
300,000
0.0%
200,000
2014
2015
2016
2017
Source: Gartner Worldwide IT Spending Forecast, Q2 2014
100,000
0
2005
2007
2009
Source: IBISWorld, July 2014
2011
2013
2015
2017
2019
Data centers have a significant economic impact on the markets within

which they operate, especially as revenue and employment within the
industry increases. Consequently, taxes and incentives are often used
by government entities to lure data center development to specific
municipalities. These programs provide full or partial exemption of sales
taxes dependent on certain thresholds. For example, Chicago recently
approved a Class 6B property tax break that grants Quality
Technology Services approximately $11.4 million in property tax
savings in exchange for the conversion of the Chicago-Times
2018
As IT budgets increase, so does the need for companies to cut out

redundancies and improve efficiency. This dynamic, along with the
increasing connectivity requirements of mobile consumers and workers,
has pushed companies away from in-house ownership and management
of data centers and toward the multitenant data center market.
Demand drivers
In addition to the reasons above, companies are leasing third-party data
center space to:
Mitigate capital expenditures
Eliminate resource intensive maintenance responsibilities
Lower facility operating expenses
Accommodate rapid changes in data and equipment needs
Gain flexible power densities

Access deeper technical expertise and innovations
Free up IT resources to focus on value generating
business initiatives.
In light of some recent high profile data breaches, IT security has gained
priority for companies, especially those in healthcare, banking and retail.
According to IBM and the Ponemon Institute, 2014 marked a reversal in
costs associated with data breaches. After two years of declines, both
the cost of a data breach for organizations and the cost per lost or stolen
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.
The uptick in costs is attributed to the additional expenses required to
preserve a companys brand and reputation following the loss of client or
customer information.
Supply drivers
Todays third-party data center landscape is seeing consolidation among
large players and new entrants joining the industry. There are hundreds
of data center providers in North America and while tier 1 markets
are dominated by the industrys largest firms, competition exists
from smaller players with one or a few facilities. Adding a layer of
complexity is the emergence of hybrid offerings and new services that
range from colocation hosting to complete turnkey or custom spaces,

access to the open internet exchange, cloud computing, disaster
recovery, IaaS and IT services other forms of managed services.
As seen in the table below, many of the large providers operate in both
market segments. There are distinct differences between retail
colocation and wholesale colocation in terms of payment structure, cost
and support. But the lines are starting to blur as providers seek to
differentiate on connectivity and technologies such as open internet
exchanges gain interest.
Another dynamic in the third-party provider market is the trend of
spinning off assets into an REIT and/or going public. Once public
these firms must balance the need to grow with delivering healthy
earnings for stakeholders. QTS Realty Trust went public last year and is
currently in expansion mode-buying facilities in New Jersey and Chicago
and continuing construction in Texas, Georgia, Virginia and California. In
contrast, Digital Realty, which was one of the first to go public in 2001,
has announced its intent to sell underperforming properties and upgrade
some existing facilities. Both Iron Mountain, Equinix and Windstream
Holdings Inc. have recently announced that following favorable rulings
from the IRS they plan to spin off their real estate assets into an REIT.
Market segments
Retail colocation
Wholesale colocation
Definition
A tenant leases typically between 500 and 5,000 square feet

of data center space within a cage, cabinet or rack and has
power needs of 250 kW or less.
A tenant leases individual white-space rooms typically ranging in

size from 5,000 to 50,000 square feet. Historically, the minimum
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,

security, power backup, HVAC, blended internet)
Additional services can include:
Remote hands technician
Network monitoring services
Carrier-neutral network connectivity
Cloud backup and replication
Typical tenant type
A wide range of customers, from Fortune 1000 to small and

medium-sized businesses
Major providers
AT&T
CyrusOne
ViaWest
Telx
Equinix
QTS Realty Trust
Verizon/Terremark
Internap
CenturyLink
Typically private suite or cage

Maintenance on fire alarm systems, security systems,
generator, HVAC and UPS system
Greater control and security
Build-to-suit services
Sale-lease-back option
Metered electric
Companies that need a lot of space and power, want to keep

costs low, have stringent regulatory standards, need room for
expansion at the same facility and/or require a high level of
customization
CoreSite
Digital Realty Trust
DuPont Fabros
Sabey
T5 Datacenters
QTS Realty Trust
Cyrus One
Stream Data Center
Raging Wire
Real estate insight

A data center market requires two things: low cost electricity and
enormous bandwidth. A tier 1 data center market has this along with low
operating costs, fiber availability, low natural disaster risk, accessibility
by car and air, attractive government incentives and proximity to
businesses with significant data needs. The top data center markets in
North America are:
North American Data Center market
Tier 1 Data Center markets
Emerging Data Center markets
Atlanta
Boston
Chicago
Dallas
Los Angeles
New York/New Jersey
Northern Virginia
Phoenix
San Francisco/Silicon Valley
Seattle
Source: 451 Research
Houston
Philadelphia
Miami
Toronto
Denver
Baltimore
San Diego
Charlotte
Cincinnati
Las Vegas
Minneapolis
The data center market is seeing very competitive pricing due to the
large number of options available to tenants in todays market. With the
exception of Houston and Toronto, most of the data center markets
are tenant-favorable and will remain so through late 2015. While
leasing activity has been strong, third-party providers have been
aggressive with new development and construction largely surpassing
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
markets such as Silicon Valley and Northern Virginia added additional
supply to the market as well and further reduced leverage for some
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
agreement with the landlord and no visibility of extension rights.
Therefore, while sublease space does directly compete with direct stock
it does so to a lesser degree than seen in the traditional office real
estate market.
Today, the focus of providers is leasing up existing inventory and
improving return on invested capital (ROIC). Looking forward, new
inventory will be delivered just-in-time where a shell is ready to
go but not built out until a lease is in place. Providers will also be
seeking to maintain low cost-to-build with the largest data center
companies averaging $7 million or less per megawatt on a fully
developed mega site.
retail are positioned to capture the strongest demand growth. The

data center market sees extremely high renewal rates due to the
investment needed to launch a data center and this limits the amount of
vacant space hitting the market as well.
Outlook
The window of opportunity is open for tenants seeking data center space
and solutions. To compete, providers are offering 10.0-15.0 percent
discounts, concessions and tenant improvements on some deals.
However, economic and business indicators point to increasing demand
and third-party providers are pulling back on construction. By late 2015
and early 2016, leverage will shift toward providers and costs will start to
trend upward.
Market outlook
Atlanta
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Chicago
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Dallas-Fort Worth
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Houston
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Los Angeles
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Minneapolis / St. Paul
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Northern NJ
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Northern Virginia
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Phoenix
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Seattle-Portland
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Silicon Valley
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
User favorable market

Neutral market
Provider favorable market
The provider landscape will see continued consolidation especially

across borders as third-party providers look to grow through strategic
acquisitions. The purchase of Peak 10 by GI Partners, one of the largest
private equity players in the data center market, to fuel aggressive
expansion plans is an example. Another example is the acquisition made
by Canadian company Shaw Communications of ViaWest to rapidly gain
a significant share of the North American market.
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
The North American data center market is expected to

grow by 32.0% to $14.8 billion from 20142016
INDUSTRY
TECHNOLOGY
2014:
By 2016:
50%
74% of adults
2014:
use social networking
In 2014:
U.S. retail
e-commerce
sales increased
15.7%
Financial firms
account for
16%
of data center revenue
of all workloads will be

processed in the cloud
In 2017: Global data center
traffic will triple to
CORPORATE
87% of American adults use

the internet and 68% connect
via mobile devices
51%
3x
of U.S. healthcare systems

will use cloud storage
7.7 Zb
By 2018: Global
market for
cloud equipment
will reach
$79.1B
moving away
Companies are
from internal IT management
Outsourcing data center

functions is less expensive and improves efficiency
In 2014:
U.S. companies
paid an average of
$5.9M
for data
breeches
Atlanta
Supply
Demand
Rental rates
Total inventory: 1.5 M s.f. / 150 MW

Total commissioned vacant: 117,000 s.f. / 18 MW
Under construction: 40,000 s.f. / 7 MW
Planned: 160,000 s.f. / 18 MW
Net absorption: 11.0 MW
< 250 kW: $235 - $375/kW (all in)

>250 kW: $125-$150/kW (+E)
Data center overview

Supply is being absorbed at a much faster rate now compared to
previous years in Atlanta. QTS is adding space at both their metro and
their Suwanee facilities. Peak 10 is delivering their first pod in their new
Alpharetta facility in September.
Demand is coming from all industries (insurance, financial, technology,
hospitality, healthcare etc.).
Utility rates in the southeast remain very attractive in the $.047 range.
GA Power is investing in a large nuclear power plant, and the forecast
calls for stable, competitive rates in the future.
Increasing supply in retail and wholesale categories.

Aggressive pricing and ramp structures continue in 2014.
for Providers
Several significant investment opportunities on the market including
E*Trades data center and GEs data center in Alpharetta.
Several providers considering new builds of wholesale and retail space,
some looking for anchor tenants to kick off a new building including QTS,
Bytegrid, Equinix, Telx, Peer1 and Digital Realty Trust .
Q3 14
User demand by industry
Q4 14
8.0
6.0
6.2
Q2 15
Q3 15

Neutral market
5.5
4.85
4.8
4.7
2011
2012
2013
2014
4.0
2.0
0.0
2010
30.0%
Q1 15
Multiyear electricity | Average power rate

Cost per kW
Overall employment growth, corporate headquarter relocations, and

regional office expansions are contributing to an improving economy
which directly benefits providers of data center space.
Outlook
for Users
30.0%
Financial&
Banking
Financial
Services
2014 significant data center transactions
Healthcare
Telecom
15.0%
25.0%
Technology
Fortune 500 Financial

T5
1.5 MW
Technology Company
QTS
~8 MW
Software Company
QTS
1 MW
Chicago

Planned: 1,379,747 s.f. / 201 MW
Demand
Rental rates
< 250 kW: $175-$350/kW (all in)

>250 kW: $125-$150/kW (+E)

Supply has increased significantly in 2014 with providers including
QTS, Forsythe, DFT, ByteGrid and Ascent all commencing construction
on significant projects. There has been an equal amount of new
deliveries in Chicagos two markets with QTS and Ascent building
downtown while Forsythe, ByteGrid and DFT build in the suburban
market. This development is driven by the high occupancy rates and
success of DLR (350 Cermak and Franklin Park), Coresite (427 S
LaSalle) and Ascent (505 Railroad). Also fueling this trend is Chicagos
continued recognition as a global destination for business, low utility
costs, excellent fiber and limited natural disaster risk.
Demand reflects the diversity of Chicago business environment with
demand coming from technology companies, law firms, financial /
trading firms, manufacturing, insurance and healthcare.
In response to natural disaster risk mitigation, there is an uptick in
national searches focused on the central U.S. and Chicago in particular.
Headcount growth at companies like Google, HSBC, Walgreens
and Gogo continues to position Chicago as a hub to recruit skilled
technical staff.
Technology
10.0%
15.0%
10.0%
15.0%
40.0%
10.0%
Telecom
Outlook
for Users
Well funded / sophisticated operators competing hard to fill
new deliveries.
Pricing on leases < 250 kW seeing historic low rents under $180 / kW.
for Providers
Providers proactively courting tenants to anchor new developments.
Spec suites will continue to be the best opportunity for success.
Aggressive ramps and flexibility in leases can be expected in buildings
with high vacancy rates.
Rents will stay low and decrease in 2015 as new developments deliver.
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15

Neutral market

7.0
Cost per kW
Supply
6.5
6.5
6.5
6.0
6.0
6.0
5.5
5.5
5.0
2010
2011
2012
2013
2014
Retail & E-commerce

Banking & Financial
Services
Healthcare
Insurance
Abbvie
CenturyLink
2 MW
NextWave
Latisys
300 kW
SingleHop
DLR Franklin Park
2 MW
Dallas Fort Worth

Planned: 592,000 s.f. / 80 MW
Demand
Rental rates
< 250 kW: $250-$350/kW (all in)

>250 kW: $125-$150/kW (+E)

Supply has been absorbed (25.5 MW) at a rate faster than any other
year on record in DFW as of Q2 2014. Both CONE and QTS are
delivering in the third quarter. T5 will deliver 3.5 MW by year-end and
DataBank another 1.5 MW. DLR is site ready in Richardson for a singlestory 10 MW or two-story 22.5 MW building but hasn't commenced
construction on the shell.
hospitality, etc.) with over 50 MW of requirements in the marketplace.
This demand is driving existing data center providers and new data
entrants to consider Dallas for expansion.
As utilities become more important in the central and southwestern
United States, providers are locking in on longer-term fixed electrical
pricing. Oncor delivered six new generation plants in August.
Overall workforce growth, corporate headquarter relocations, and
regional office expansion in DFW have created a significant demand for
more data center supply.

Technology
Telecom
25.0%
35.0%
5.0%
5.0%
10.0%
20.0%
Outlook
for Users
Small window in 2014 with deficit in supply.
Power costs might increase slightly at the end of 2014.
for Providers
Providers racing to get inventory to market.
Users will expect rent ramps to offset consolidation costs.
Price compression will be less than 5.0 percent in 2014 (annual average
is 7.0 percent).
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15

Neutral market
Cost per kW
Supply
7.5
7.0
6.5
6.0
5.5
5.0
7.2
2010
7.0
2011
6.0
6.0
2012
2013
5.8
2014
Retail & E-commerce

Banking & Financial
Services
Healthcare
Insurance
Seattle Wireless Co.

T5
3.5 MW
San Ant Insurance Co.

CyrusOne
1 MW
San Fran SaaS Co.

QTS
3 MW
Houston
Supply
Demand
Rental rates
Total inventory: 620,600 s.f.

Total commissioned vacant: 74,500 s.f. / 9.8 MW
Under construction: 144,000 s.f. / 24.00 MW
Planned: 527,484 s.f. / 62.20 MW
< 250 kW: $260-$360/kW (all in)

>250 kW: $140-$160/kW (+E)
Supply has been absorbed (~8 MW) at a stable rate, much of which is
explosive growth of HPC (high performance computing) environments.
New supply is being built-out with CyrusOne delivering 44,000 square
feet with runway for significantly more space. Data Foundry will bring
online a 250,000-square-foot building in 2015 with up to 50 MWs of
future capacity available.
Demand is coming from all industries due to the significant population
and job growth in the Houston market. The largest demand is still
coming from the oil and gas sector as technology is critical to drilling
and exploration efforts. Demand is also coming from healthcare and
financial services industries. This demand is driving existing Houston
data center providers and new data entrants to consider Houston for
additional expansion.
As HPC becomes more important to the exploration of oil and gas,
companies are outsourcing more of this technology to colocation
operators that can handle the high density computing environments
needed to run seismic data.
Small window in 2014 with deficit in supply.

Pricing will compress 1Q15 with new supply on line.
Power costs might increase slightly to the end of 2014.
for Providers
Users will expect rent ramps to offset migration costs.
Price compression will be more than 5.0 percent in 2015.
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Tenant-favorable market
Neutral market
Landlord-favorable market

9.0
8.1
8.0
7.0
6.9
6.9
6.7
6.6
2011
2012
2013
2014
6.0
5.0
Oil & Gas
5.0%
Telecom
20.0%
45.0%
20.0%
Outlook
for Users
Cost per kW
2010
Retail & E-commerce

Banking &
Financial Services
Healthcare
5.0% 5.0%
Insurance
CyrusOne
Web Hosting Industry
1.5 MW
CyrusOne
Oil & Gas Industry
900 kW
Stream
Oil & Gas Industry
1.3 MW
10
Los Angeles
Supply
Demand
Rental rates

Under construction: 0 s.f. / 0 MW
Planned: 0 s.f. / 0 MW
Net absorption:
5.0 M 7.0 M MW
< 250 kW: $215-$275/kW (all in)

>250 kW: $135-$145/kW (+E)
Outlook
There has been no lack of supply as users have plenty of choices

within the Los Angeles area. El Segundo continues to be the primary
choice as options are limited in Downtown Los Angeles.
for Users
One Wilshire is 100.0 percent occupied which is forcing users to

look elsewhere.
Colocation providers continue to search for new opportunities to
expand the demand of small users. Los Angeles has become a market
of small users that are dealing with organic growth.
Electric power rates have remained steady over the last few years at
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,
power rates are expected to jump to around $0.15 cents per kW.
for Providers
Providers continue to compete for tenants.
Aggressive pricing structures exist due to lack of demand.
Average deals are 25-50 KW.
Q3 14
15.0
13.0
11.0
9.0
7.0
5.0
Technology
25.0%
35.0%
Q1 15
Q2 15
Q3 15
Neutral market
13.0
13.0
13.0
13.0
13.0
2010
2011
2012
2013
2014
Retail & E-commerce
5.0%
5.0%
10.0%
Telecom
Q4 14

Cost per kW
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.
Plenty of options in the market.

Entertainment and technology will continue to drive transaction activity.
20.0%
Banking & Financial

Services
Healthcare
Media &
Entertainment
LAX Airport
T5
1 MW
SpaceX
Internap
500 kW
T5
Anonymous enterprise
2 MW
11
Minneapolis/St. Paul
Supply
Demand
Rental rates
Total inventory: 302,139 s.f. / 40 MW

Planned: 131,000 s.f. / 17 MW
< 250 kW: $250-$350/kW (all in)

>250 kW: $145-$190/kW (+E)
Outlook
Supply is at an all-time high as the Twin Cities has seen unprecedented

development of new facilities by regional and national colocation
providers. Stream Data Centers, ViaWest and CenturyLink Technology
Solutions have commissioned a combined 75,000 raised floor square
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
currently under construction on their new 90,000-square-foot facility
which is expected to deliver 1.5 MW in the first quarter of 2015.
for Users
Recently passed data center tax incentives allow tenants of qualifying

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
Minneapolis/St. Paul on the map for out-of-state companies looking for
colocation space.
for Providers
New entrants to market will taper as product comes online.
Users will expect tax incentives and a variety of options.
Pricing will compress as more product hits market.
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Neutral market

20.0
Cost per kW
Demand is increasing now that there are numerous options for both
retail and wholesale colocation within the Twin Cities marketplace. Prior
to this year, colocation options for requirements over 250 kW were
extremely limited.
Supply and options are at an all-time high.

Aggressive pricing and ramp structures because of new product influx.
Ability for smaller users to get tax rebates through qualifying colo facilities.
15.0
14.8
14.8
14.8
14.8
15.3
2010
2011
2012
2013
2014
10.0
5.0
Technology
6.0%
31.0%
Telecom
Retail & E-commerce
37.0%
Manufacturing
10.0%
3.0% 13.0%
Healthcare
Insurance
FICO
CenturyLink
300 kW
Ucare
Unisys
150 kW
Essentia Health
Involta
400 MW
12
Northern New Jersey

Supply
Demand
Rental rates
Total Inventory: 3.2 M s.f. / 324MW

Total commissioned vacant: 256,000 s.f./28MW
Under construction: 186,000 s.f. / 21MW
Planned: 876,000s.f. / 104MW
< 250 kW: $190-$300/kW (all in)

> 250 kW: $105-$175/kW (+E)

Supply has nearly doubled over the past 24 months with new colocation
facilities opening throughout the region. This along with other factors is
putting downward pricing pressure on both wholesale and retail
colocation rental rates. Currently JLL is tracking more than 100,000
square feet of either recently completed or under construction
wholesale grade product.
Demand leveled off during the first half off 2014 after a strong 2013. But
recent trends have indicated a new momentum in demand coming from
the historically active sectors including financial services, healthcare and
pharmaceuticals. In addition to these traditional players, new sectors
such as media, bitcoin and internet content providers have entered the
NY-Metro market with some regularity.
As power contracts renew, users and colocation providers are
benefiting from lower electricity rates, along with hedging practices.
Outlook
for Users
Supply is outpacing demand.
Historical low rates quoted.
Continued downward pressure on cost and risk.
for Providers
Increased competition by new providers.
Supply at an all-time high.
Just takes a few deals to level market.
Occupiers looking for low cost alternatives for less critical data.
Q3 14
Cost per kW
11.0
10
Q2 15
Q3 15

Neutral market
9.0
8.5
8.5
9.0
2011
2012
2013
2014
5
0
2010
7.0% 8.0%
3.0%
Q1 15

15
Q4 14
Technology
Banking &
Financial Services
Media &
Entertainment
Healthcare
84.0%
Bitcoin Company
IO
2.5 MW
Financial Services
Sentinel Data Center
1.5 MW
Financial Services
Digital Realty
3 MW
13
Northern Virginia
Supply
Demand
Rental rates
Total inventory: 2.4 M s.f. / 498.3 MW

Total commissioned vacant: 605,263 s.f. / 115.9 MW
Under construction: 107,400 s.f. / 20.8 MW
Planned: 882,150 s.f. / 176.2 MW
< 250 kW: $235-$320/kW (all in)

>250 kW: $120-$140/kW (+E)

Market confluence is dominated by new supply offerings with major
developments under way by CyrusOne, DFT, DLR and CoreSite. QTS
will deliver a 1.3 million-square-foot/100 MW facility in Richmond. This
will undoubtedly provide meaningful power and space options over the
coming quarters.
Outlook
for Users
Market leader for cloud computing with best in class latency.
Historic pricing and concessions continue well into 2015.
Power costs remain steady and predictable.
Limited powered shell building options.
Sublease space adds pressure for third-party providers with more than
30 MWs of inventory.
for Providers
Technology dominates demand and is the force driving new

deployments. But there is continued demand across all
industry segments.
While overall employment growth is weak compared to historical

norms, demand for data center workers has accelerated. The region is
home to a skilled knowledge based IT workforce.

Aerospace & Defense
11.0%
12.0%
Banking & Financial

Services
Government
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15

Neutral market

6.5
Cost per kW
Utilities rates are stable and very cost competitive compared to

Tier 1 MSAs.
Price compression will continue into 2015 as supply imbalance

dominates market fundamentals.
Competition will force aggressive pricing, concessions and deal velocity.
Competition widens with new market entries and comprehensive
service offerings.
6.0
5.8
6.0
6.1
6.0
5.7
5.5
5.0
2010
2011
2012
2013
2014
Healthcare
53.0%
15.0%
1.0%
2.0%
5.0%
Insurance
Retail & E-commerce
Technology &
Telecom
GoDaddy
DFT ACC7
2.8 MW
PNC.
QTS
4 MW
Level3
Powered Shell Purchase
50,000 s.f.
14
Phoenix
Supply
Demand
Rental rates
Total inventory : 1.3 M s.f. / 174 MW

Total commissioned vacant: 120, 000 s.f./ 16 MW
Planned: 251,000 s.f. / 40 MW
< 250 kW: $250-$325/kW (all-in)

> 250 kW: $130-$150/kW (+E)
Supply continues to see significant growth as a majority of West Coastbased companies consider metropolitan Phoenix valley as one of the
top five markets for their data center needs. Recent supply in the valley
has been absorbed quickly by telecom and technology companies and
this has put pressure on providers to build new colocation facilities.
National providers such as QTS, Ascent and Switch are strongly
considering new entry into the Phoenix market.
Demand has been modest during the first half of 2014, following strong
activity in 2013. Market trends indicate price stabilization on lease and
purchase rates for wholesale colocation facilities. Technology
companies in the metropolitan Phoenix valley are experiencing global
and local growth and this fuels organic demand. Tenants continue to
seek maximum flexibility in colocation facilities as enterprises try to
avoid overcommitting power.
Power costs remain an intriguing factor to influence out-of-state
enterprises to relocate to Arizona. Longer-term contracts between
utility companies and colocation providers is an upward trend in the
local market.
10.0%
Deficit in supply until CyrusOne delivers new facility in the fourth quarter.
Aggressive pricing and ramp structures will tighten up.
Continued attraction to the market due to AZ Data Center Tax Exemption.
for Providers
Race to deliver new inventory to the market (CyrusOne, PhoenixNAP).
Users will expect rent ramps to offset consolidation costs.
Price increase will include additional services going into 2015.
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15

Neutral market

6.8
6.6
6.6
6.6
6.5
6.4
6.2
6.2
6.3
6.0
Retail & E-commerce
20.0%
15.0%
20.0%
15.0%
Outlook
for Users
Cost per kW
Technology
2010
2011
2012
2013
2014
Banking & Financial

Services
Telecom
Healthcare
20.0%
Insurance
Bitcoin Company
CyrusOne
8 MW
CenturyLink
IO
9 MW
Banking Software Co.

Digital Realty
1.35 MW
15
Seattle-Portland
Supply
Demand
Rental rates

Planned: 259,000 s.f. / 36 MW
< 250 kW: $200-$300/kW (all in)

>250 kW: $125-$145/kW (+E)
Outlook
There is a major increase in data center activity in the SeattlePortland area.
for Users
Demand is primarily driven by colocation users and a few large

enterprise users. There is strong user demand generated by the
extremely inexpensive power ($2.5 cents/kw) in Eastern Washington
and the Tax Enterprise Zones in Oregon.
One of the features that makes Seattle-Portland an attractive data

center market is its strong network backbone.
Cloud users and content delivery companies are expanding their data
center presence here.
The market is a major technology hub and that is resulting in
immediate data center requirements.
8% 2%

Demand increasing from retail users that are regionally based.
Hot investment market.
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15

Neutral market

6.5
6.2
6.3
6.3
6.4
6.4
2010
2011
2012
2013
2014
6.0
5.5
5.0
Technology
5%
Telecom
45%
20%
for Providers
Cost per kW
There is an abundance of retail colocation options available.
Few options for large requirements in Seattle; abundance of availability for

smaller users (<250kW).
Large users active in rural areas.
Power costs are stable; leasing costs continue to rise in urban areas.
Retail & E-commerce

Banking & Financial
Services
Healthcare
20%
Insurance
Group Health
Sabey
300 kW
Comcast
T5
6-9 MW
EdgeConnex
RREEF
4 MW
16
Silicon Valley
Supply
Demand
Rental rates
Total inventory : 3.6 M s.f. / 348 MW

Total commissioned vacant: 73,000 s.f./ 16 MW
Under construction: 44,000s.f. / 9 MW
Planned: 384,000 s.f. / 58 MW
< 250 kW: $250-$325/kW (all-in)

> 250 kW: $125-$140/kW (+E)
Supply, Inventory levels have dropped to a historically low level of

turnkey product and although many projects are planned most have yet
begun construction. Absorption in Q2 and Q3 was above average with
multi megawatt deals being signed by cloud providers and software
companies and has stabilized the rental rates and put increased
pressure on certain providers to build new powered shell and
turnkey product.
Demand, has been consistent in 2014 and has seen increased activity
over 2013. Low inventory levels and a lack of construction suggest
pricing corrections on wholesale and colocation leasing rates. Local
technology companies, mobile applications and cloud requirements will
continue to drive organic growth.
Power, costs in Santa Clara (SVP) remain the lowest in the region and
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
keep local companies from moving to other regions..
Outlook
for Users
Supply will be constrained by years end and until Dupont Fabros and
Coresite bring additional capacity online.
Pricing has stabilized and is beginning to trend upwards
Larger contiguous space will be difficult to obtain in the Silicon Valley
for Providers
Providers like Coresite, Vantage and Dupont Fabros will have an
opportunity to take up marketshare with new construction projects
Users will expect rent ramps to offset consolidation costs
Price increase will drive customers to other states.
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15

Neutral market

6.8
Cost per kW
6.6
6.6
6.6
6.5
6.4
6.2
6.2
6.3
6.0
10.0%
2010
20.0%
2011
2012
2013
2014
Retail & E-commerce

Technology
15.0%
Financial Services
20.0%
15.0%
Telecom
Healthcare
20.0%
Insurance
Microsoft
Dupont Fabros
6 MW
Alibaba
Coresite
3 MW
Navisite
.
Digital Realty
3.6 MW
17
Greater Toronto Area (GTA)

Supply
Demand
Rental rates
Total inventory: 1.5 M s.f/ NA MW

Under construction: NA s.f. / 2 MW
Planned: 489,000 s.f. / 101 MW
Net absorption: 5 MW
<250 kW: $250-$550/kW (all in)

>250 kW : $150-$190/kW (+E)
Outlook
Supply both across Canada and within the Toronto and Southern
Ontario area has historically been limited. Recent successful data
center developments have helped amplify interest from both
international and domestic data center operators.
for Users

hospitality, etc.).
Current planned data center premises forecast for potential occupancy
within the next 24 months could have a significant impact on future
pricing metrics.
Pressure on pricing and quality of infrastructure for existing providers
is forecast.
8.0%

Significant future competition is forecast to increase pressure on pricing
and data center efficiencies.
Q3 14
Healthcare
11.0%
45.0%
Q4 14
Q1 15
Q2 15
Q3 15
Neutral market

10.0
9.0
8.0
7.0
6.0
5.0
8.9
7.5
6.0
2010
Banking & Financial

Services
2.0%
12.0%
for Providers
Cost per kW
New data centers currently being planned are expected to offer

significant competition within a market that has historically seen limited
new supply.
Significant number of planned opportunities.

Flight to improved Tier level projected with new options coming to market.
Power costs projected to increase which should translate into additional
demand for reduced PUE and data center efficiencies.
7.9
6.6
2011
2012
2013
2014
Insurance
Telecom
Retail & E-commerce
22.0%
Manufacturing
Soft Layer
Digital Realty
2.5 MW
Technology Firm
Cologix
300 kW
18
Contacts
For more information, please contact:

Americas Research
Lauren Picariello
+1 617 531 4208
lauren.picariello@am.jll.com
Atlanta
Mike Dolan
+1 404 995 2432
mike.dolan@am.jll.com
Ryan Fetz
+1 404 995 2132
ryan.fetz@am.jll.com
Chicago
Matt Carolan
+1 312 228 2513
matt.carolan@am.jll.com
Andy Cvengros
+1 312 228 3202
andy.cvengros@am.jll.com
Sean Reynolds
+1 312 228 3091
sean.reynolds@am.jll.com
Dallas Fort Worth
Bo Bond
+1 214 438 6238
bo.bond@am.jll.com
Ali Greenwood
+1 214 438 6237
ali.greenwood@am.jll.com
Curt Holcomb
+1 214 438 6240
curt.holcomb@am.jll.com
Houston
Bo Bond
+1 214 438 6238
bo.bond@am.jll.com
Ali Greenwood
+1 214 438 6237
ali.greenwood@am.jll.com
Curt Holcomb
+1 214 438 6240
curt.holcomb@am.jll.com
Los Angeles
Darren Eades
+1 213 239 6061
darren.eades@am.jll.com
Jordan Gaffney
+1 213 239 6041
jordan.gaffney@am.jll.com
Northern New Jersey
Jon Meisel
+1 973 404 1475
jonathan.meisel@am.jll.com
Jeff Groh
+1 703 485 8833
jeff.groh@am.jll.com
Minneapolis/St. Paul
Brett Severson
+1 612 217 5143
brett.severson@am.jll.com
Brian Ginkel
+1 612 217 5127
brian.ginkel@am.jll.com
Phoenix
Mark Bauer
+1 602 282 6259
mark.bauer@am.jll.com
Mark Stratman Jr
+1 602 282 6260
mark.stratmanjr@am.jll.com
Stuart Cox
+1 416 525 4132
stuart.cox@am.jll.com
Sumner Putnam
+1 973 404 1513
sumner.putnam@am.jll.com
Seattle-Portland
Conan Lee
+1 206 607 1723
conan.lee@am.jll.com
Thomas Reilly
+1 973 404 1476
thomas.reilly@am.jll.com
Danny Jackson
+1 206 607 1798
danny.jackson@am.jll.com
Northern Virginia
Allen Tucker
+1 703 891 8396
allen.tucker@am.jll.com
Silicon Valley
Chris Sumter
+1 650 354 3346
chris.sumter@am.jll.com
19
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,
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COPYRIGHT JONES LANG LASALLE IP, INC. 2014

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Data Center Outlook

North America | 2014

National Data Center overview

North American Data Center market

Northern New Jersey

Greater Toronto Area

JLL | North America | Data Center Outlook | 2014

National Data Center overview

Cisco forecasts that global data center traffic

Data centers have a significant economic impact on the markets within

As IT budgets increase, so does the need for companies to cut out

Gain flexible power densities

range from colocation hosting to complete turnkey or custom spaces,

A tenant leases typically between 500 and 5,000 square feet

A tenant leases individual white-space rooms typically ranging in

What the tenant gets

Full facility maintenance and systems (fire suppression,

Typical tenant type

A wide range of customers, from Fortune 1000 to small and

Typically private suite or cage

Companies that need a lot of space and power, want to keep

JLL | North America | Data Center Outlook | 2014

Real estate insight

Emerging Data Center markets

Source: 451 Research

retail are positioned to capture the strongest demand growth. The

Minneapolis / St. Paul

Greater Toronto Area

User favorable market

The provider landscape will see continued consolidation especially

The North American data center market is expected to

use social networking

of all workloads will be

87% of American adults use

of U.S. healthcare systems

Outsourcing data center

JLL | North America | Data Center Outlook | 2014

Total inventory: 1.5 M s.f. / 150 MW

Net absorption: 11.0 MW

< 250 kW: $235 - $375/kW (all in)

Data center overview

Increasing supply in retail and wholesale categories.

User demand by industry

User favorable market

Multiyear electricity | Average power rate

Overall employment growth, corporate headquarter relocations, and

2014 significant data center transactions

Fortune 500 Financial

JLL | North America | Data Center Outlook | 2014

Total inventory: 3.3 M s.f. / 420 MW

Net absorption: 5.0 MW

< 250 kW: $175-$350/kW (all in)

Data center overview

User favorable market

Multiyear electricity | Average power rate

2014 significant data center transactions

Retail & E-commerce

JLL | North America | Data Center Outlook | 2014

Dallas Fort Worth

Total inventory: 2.7 M s.f. / 361 MW

Net absorption: 25.5 MW

< 250 kW: $250-$350/kW (all in)

Data center overview

User demand by industry