Northern Virginia: How the Washington, DC Suburb Became the Model for the Global Data Center Market

Allen C. Tucker, Managing Director, NYSE: JLL

Allen C. Tucker, Managing Director, NYSE: JLL

In 2018, the Northern Virginia data center market share growth continued to outpace the rest of the United States’ leading data center markets by more than double. By the close of 2018, Northern Virginia reported its fifth most historic year with 270+ MWs, representing 53 percent national market share. What drives Northern Virginia as the leader today is an unparalleled business ecosystem that has grown from the origins of the internet over the past 20 years and a prototype for which subsequent data center markets strive to achieve. Looking into the crystal ball, 2019 should show no signs of a slowdown for the world’s leading data center market in Northern Virginia. In fact, we anticipate growth to expand beyond Loudoun and Fairfax Counties into Prince William County to the south given the surplus of available large land parcels.

The Perfect Storm

Very few enterprises build their own on-premise data centers given its cost prohibited and require considerable time commitment versus the competitive savings enterprises can achieve in leasing collocation ‘colo’ data center space from premier data center providers (landlords) that offer rich, robust critical infrastructure to achieve savings, reduced deployment timing, and skill technical services. The savings enterprises can achieve allow enterprises to focus on their core enterprise services in deploying new technology products to their internal and external customers. Northern Virginia got its start as a leader in this space by developing colo data centers as a pure play for enterprises given Northern Virginia’s superior infrastructure ecosystem. The companies who pioneered the movement, like Exodus Communications, PSInet, Global Crossing, and others have been succeeded by today’s premier data center REITS (real estate investment trusts) Equinix, Digital Realty, CoreSite, QTS, CyrusOne and private data center providers, have laid the foundation for what Northern Virginia’s data center landscape is today. But, it’s more than that. A confluence of legislative support, fiber, power, development, deployment of new IT technologies and other partnerships all contribute to what makes Northern Virginia the data center tech superpower.

This superpower is largely comprised of six main technology industries: cloud, social media, healthcare, financial, retail marketing and system integrators, with the bulk of the business being done in the cloud (tomorrow’s internet), social media and technology buckets. Businesses want to be in Northern Virginia to utilize this superior infrastructure for their enterprise and the ability to monetize their technology for consumers to actively use to improve their lifestyle (Uber, Waze, Amazon, Facebook, LinkedIn, iTunes, FaceTime, Nest, Netflix, OpenTable, Gaming, Search, e-commerce payment, and many, many more).

The Home to Data Center Alley // Where Data and Innovation Collide

Northern Virginia is home to Data Center Alley, now recognized as the Internet Capitol, situated just 35 minutes west from downtown Washington, DC in Loudoun County. More than 70 percent of the world’s internet traffic passes through the region each hour of every day and is the only market with five major DC REITs and campuses.

What makes this specific market attractive for data centers, and why it continues to grow, is primarily because it all began here with a rich history. However, data centers in Northern Virginia benefit from many other assets including:

Today, We Rely On Data More Than Ever Before

● Minimal to no natural hazards

● Neutral climate

● Low PUE (Power Usage Effectiveness) / low operating expense, the largest neutral network peering points (Equinix and Coresite)

● Proximity to large dense population centers, an abundance of Federal government and defense contractors

● Readily available flexible land bays

● Limited repurposed powered base buildings

● Large IT hardware depots that allow for fast response time for network equipment replacement

● Pro-business climate that energizes a robust ecosystem

● Extensive and numerous lit and dark fiber provider networks with super high count fiber with ultra-low latency that is the catalyst to new technology deployments

● Aggressive and cost-effective energy provider (Dominion Energy) that has developed the most sophisticated energy deployment network nationally. Smart + Driven Workforce

The Washington, DC Metro region boasts one of the most highly educated and skilled labor pools in the country. Northern Virginia has the greatest access to the labor pool that is always enduring; the United States Military. They come to the region, work in one of the services and eventually plant roots here by switching over to civilian life or retiring. They bring with them a tremendous work ethic; focus on the security of property and information that can easily be transferred into the data center industry. Other markets do not benefit from the same constant refresh of their labor pool.

The Sky’s the Limit

The vertical data center is swiftly becoming more in vogue. Northern Virginia has been a market leader in adaptive change and design. The construction of data centers has gone from single to multi-story and from a custom build to a modular build. Digital Realty Trust, for example, was the first to develop turnkey data centers (TKD), which has expedited the entire development cycle, giving rise to even more developments. The region will continue to excel with innovative thought leadership in key tech initiatives such as further forays into artificial intelligence.

What’s Coming

Due to historic demand and absorption, JLL continues to see new entries into the market. In 2018, we witnessed new investments by Align, Cologix, Compass, EdgeCore, Stack, Vantage and Equity Infrastructure Funds. In addition more new entrants in 2019, we will see even more private providers bearing more importance in the market. New and existing enterprises will benefit from competition of new service offerings, competitive rents, fluid timing of available space, power and networks, excellent opportunity to re-structure older lease agreements to improve evolving technology needs, and much more.

As the rest of the country braces itself for some potential economic challenges, the level of inventory in Northern Virginia coupled with the strong demand due to its highly educated workforce and excellent location in the Mid-Atlantic does provide for a strong market outlook. For this reason, we continue to see great investment in the data center market in Northern Virginia with no signs of slowing.

What This Means for You

As a CIO / CTO, is your professional strategic goal to manage the enterprise infrastructure or deliver services to the enterprise at a cost-effective solution? Is your organization delivering best in class infrastructure or deployment of services? Can your organization monetize these services better to decrease cost or increase revenues to your organization?

Today, we rely on data more than ever before. For an organization to thrive for the long-term, it must provide secure access to 24/7 data. As Northern Virginia’s data center market continues to grow at unprecedented rates, so too are colo centers. Colos provide space, cooling, backup power and security for a company’s server, but for a more minimal investment. There are currently over 4,400colo centers across the globe and more are in Northern Virginia than anywhere else globally. In 2019 and beyond, we expect the trend for enterprise business to enter the colocation market to continue to rise – it’s the new frontier for IT – are you ready for IT?