Are Bay Area Colocation Providers Attracting Enough Capital?

Bay Area colocation has seen a boom where supply can’t keep up with the demand.

The current demand for data centers in the area is almost four times more than what’s available. As more and more companies move into the area to be closer to their data centers, the urgent need for more investment in colocation centers will continue to grow.

Supply vs. Demand Issues

This high demand for Bay Area colocation directly impacts prices, with rents ranging from $125 to $165 per kilowatt each month and expected to get even higher.

This phenomenon can be attributed to “server hogging” or companies choosing to go with the Bay Area because it’s closer to them and reduces latency. When compared to other cities in Northern California, like Sacramento (just 90 miles away), which is more seismically secure, the Bay Area prices are much higher.

Facebook once leased several data centers in Northern California, but recently the company has started moving out of the Bay Area. As the company starts moving into its mega data centers elsewhere in the U.S., spaces have started opening up.

But for those looking for modern colocation spaces, there aren’t many options. This has opened the door for data center landlords like CoreSite Realty Corp. and Vantage Data Centers to battle it out in the race to add more capacity on their campuses and meet the ever-growing demand.

Who is Attracted to the Area?

Those attracted to investing in the Bay Area, for the most part, are local firms and Chinese Internet companies. This large-scale expansion is also due to new web-scale companies entering the market and Asian companies now requiring a data center presence in the region.

Further, companies already operating out of the region are growing and investing more to meet the needs of the industry. Large companies in the area, like AMS-IX Bay Area, are also growing their presence in the region through expansion.

As the demand from corporate clients changes, Bay Area colocation providers must adapt and offer various levels of redundancy (2N, N+1, and N).

As a result, it has become quite complicated to cater to each individual need. But as a whole, this seems to be the future of Bay Area colocation.

As office real estate becomes increasingly unaffordable, many companies are trying to reduce office space by hosting their IT labs at outsourced data centers. This also adds to the complications as the needs of a lab tenant and a mission-critical tenant are very different, and lab tenants are not prepared to pay for the traditional infrastructure redundancy. However, all these changes in the market are driving growth and attracting capital in the Bay Area.

Who is Making an Impact?

According to the Silicon Valley Business Journal, the biggest players in the area are as follows:

• CoreSite Realty Corp.
• Digital Realty Trust Inc.
• Equinix Inc.

These companies have been attracting significant amounts of capital to expand and to try to meet the demand. However, at the present time, Bay Area data centers are nowhere near their goal, and it doesn’t look like it will change in the near future. Although there has been a lot of investment, supply is insufficient to match the enormous demand.

Also see:

• Which San Francisco Colocation Providers Have the Best Connectivity?
• Which San Francisco Data Centers Attract the Most Capital?

Has your company outsourced to a Bay Area data center? Let us know about your experience in the Comments box below.