Chinese Internet Giants Eyeing Silicon Valley Data Centers

Earlier this week, Alibaba subsidiary Aliyun announced it was opening a data center in Santa Clara, California, as the first step in expanding the giant’s reach into the U.S. cloud services market. Alibaba isn’t the only Chinese internet company looking to gain data center foothold in Silicon Valley.

Other heavyweights, including Tencent and Baidu, have been shopping for data center space in the Valley in recent months, Jeff West, director of data center research at the commercial real estate firm Cushman & Wakefield, said. The San Francisco Bay Area isn’t the only option for an Asian company to expand its infrastructure on the West Coast, but it is the first obvious entry point.

“Proximity to Asia in the Bay Area and the general concentration of technology companies makes the Bay Area a must-have location,” West’s colleague Bill Dougherty, an executive director at Cushman, said. Alternative options are Los Angeles, Portland, and Seattle markets.

It is unclear which Silicon Valley data center Aliyun has moved into. Supply of wholesale data center space in the region's market is extremely tight at the moment, with only a few options for 1 megawatt or 2 megawatt deployments for customers who want newly built space, and who don’t want to sublease from Facebook or Yahoo, both of which have been moving infrastructure out of leased space and into their own facilities, subleasing the space they vacate that’s still under contract.

CoreSite, one of the area’s biggest data center providers, announced last July it had leased space in a Santa Clara data center to China Telecom, which would use the capacity to provide data center services to a “premier customer” that provided web and mobile services and that was looking to expand into the U.S. market. According to a report by North American Data Centers, a commercial real estate firm that specializes in data center space, China Telecom took 3 MW at the CoreSite facility.

A CoreSite spokesperson declined to comment for this story, citing company policy.

Other major Silicon Valley data center providers that specialize in wholesale deals are Vantage, DuPont Fabros, Digital Realty, and Infomart, which is the product of a recent merger between Fortune Data Centers and Dallas Infomart.

Other big wholesale deals that closed in the Valley in 2014 were Microsoft’s 6 MW lease with DuPont Fabros, NaviSite’s 3.6 MW deal with Digital Realty, and a 2.5 MW lease by Dropbox at a DuPont Fabros facility, according to the North American Data Centers report.

A lot of capacity was spoken for last year, creating a shortage of supply in the market. According to Cushman, demand is currently three to four times the supply.

About 20 MW of data center requirements have “toured the market” since the beginning of the year already, Dougherty said during a presentation at an industry event in San Francisco in February. The demand is being driven primarily by local and Asian companies, especially Chinese internet players, he said.