Microsoft Renews Big Lease, Yahoo Doesn't

Analysts who track the wholesale data center industry have been assessing the potential impact of large customers who have historically leased space but are now building their own data centers. Will these cloud-builders shift all their servers into their new facilities, leaving landlords to fill empty space once their leases expire?

Not necessarily. A case in point: Microsoft will renew one of its largest wholesale data center leases. Industry sources indicate Microsoft will renew a lease for a 10 megawatt data center in northern Virginia that was originally scheduled to expire in increments between 2012 and 2017. The lease will be renewed for eight years.

Need for Capacity

Microsoft has been building its own data centers throughout North America. Last year Microsoft announced plans to invest up to $499 million in a major new data center project in southern Virginia.  The company said that a 175-acre site near Boydton, Virginia would be the location of a state-of-the-art facility featuring  IT-PACs, Microsoft's air-cooled modular data centers. That announcement raised an obvious question: Would Microsoft still need a large chunk of leased space in the same state?

Microsoft wouldn't comment on the lease renewal, but confirmed that it is moving ahead full speed with the new data center in southern Virginia, citing stronger than anticipated demand for its cloud computing services - which in turn requires additional data center capacity.

Yahoo Migrating to New Facilities

Yahoo, meanwhile, is vacating one of its northern Virginia facilities as it shifts server capacity out of third-party facilities and into its new company-built data centers. The company told its landlord, DuPont Fabros Technology (DFT), that it will not renew a lease for 5.7 megawatts of space, which expires April 30, 2012. DuPont Fabros executives say they are already working on re-leasing the space and expect no problem filling it amid strong demand in northern Virginia.

Yahoo is in the midst of a $500 million global expansion of its data center network, with a goal of shifting its operations to newer, highly-efficient infrastructure."We’ll be migrating the entire footprint of Yahoo to these more efficient facilities,” said Scott Noteboom, the head of data center operations at Yahoo.

What About Facebook?

Facebook says that it will gradually shift most of its server capacity from leased data centers to company-owned facilities, migrating out of many third-party facilities as its leases expire. For most of the company's leases, those expirations aren't until 2016 to 2022.

A first indicator of Facebook's intentions may be its lease at a CoreSite data center in the Silicon Valley market, which expires next April. In the company's earnings call last week, CoreSite said Facebook had not yet indicated its intentions for that lease.