Data Center Building Boom in Silicon Valley

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The carrier hotel at 1100 Space Park Drive in Santa Clara serves as the anchor of a fast-growing data center cluster operated by Digital Realty Trust.

Data center developer Digital Realty Trust continues to amass real estate in Silicon Valley to convert into data centers to meet the strong demand from corporate users. Today the company said it has acquired two additional buildings in Santa Clara, Calif., one of the nation's most active markets for data center development.

Digital Realty (DLR) purchased properties at 3105 & 3115 Alfred Street in Santa Clara, which it plans to convert into six plug-n-play data centers. The two buildings contain 82,000 square feet, which will yield about 48,000 square feet of raised-floor data center space.

After a slowdown during the economic downturn, data center development in Santa Clara has accelerated this spring along with demand and access to capital. Santa Clara is the data center capital of Silicon Valley because the local power company, Silicon Valley Power, offers slightly lower rates than those available from PG&E in surrounding towns.

Buying Up Available Space
Digital Realty's new deals come less than two weeks after the company announced the purchase of 1725 Comstock Street, a 40,300 square foot commercial building adjacent to the company's main Santa Clara data center campus. The properties on Alfred Street are about a block north.

Digital Realty now has four data center properties under active development in Santa Clara, while DuPont Fabros Technology (DFT), CoreSite and Terremark (TMRK) are also building new data center space in Santa Clara. The construction projects are expected to create more than 500,000 square feet of new data center space.

The building boom comes just a year after several stalled projects in Santa Clara raised concerns about a shortage of data center space for growing Silicon Valley companies. The improved capital markets have come to the rescue.

Stock Offerings Drive New Construction
DuPont Fabros was able to float a $300 million stock offering to fund its huge project in Santa Clara, which will include more than 600,000 square feet of space in two phases. CoreSite just announced an IPO in which it expects to raise $230 million. It has started construction on a second 50,000 square foot data center in Santa Clara after Facebook leased an entire data center building as soon as CoreSite completed it in March..

And then  there's Digital Realty, the largest of the data center real estate investment trusts, which has amassed more than $800 million in cash for acquisitions and development.

"Supply-Constrained Market"
"We can continue to incrementally build out and deliver Turn-Key space in Santa Clara to meet the strong demand in Silicon Valley for our data center product," said Scott Peterson, Senior Vice President of Acquisitions for Digital Realty Trust, who called Santa Clara "an important, supply-constrained market."

Digital's Turn-Key Datacneter program offers customers finished "plug and play" raised-floor data center space, which shifts the data center development costs from the tenant to the landlord, and allows for much quicker deployment than if the customer built a new facility on its own.

Digital Realty’s Santa Clara campus is home to three data centers with a Platinum or Gold rating under the LEED standard for energy efficient buildings. Tenants include Facebook, Yahoo and NTT America. Once its latest acquisitions are retrofitted, Digital Realty will own 10 data center facilities in the vicinity of its campus on Space Park Drive.