Data Center Outlook. North America 2014

Transcription

1 Data Center North America 2014

2 Table of contents National Data Center overview 3 North American Data Center market 6 Local markets Atlanta 7 Chicago 8 Dallas-Fort Worth 9 Houston 10 Los Angeles 11 Minneapolis-St. Paul 12 Northern New Jersey 13 Northern Virginia 14 Phoenix 15 Seattle-Portland 16 Silicon Valley 17 Greater Toronto Area 18 Contacts 19 2

3 National Data Center overview Economic picture Over the last five years, two dynamics have propelled growth in the data center industry: businesses outsourcing their IT infrastructure needs and the popularization of cloud computing. In response to these trends, the North American data center market is expected to see its revenue grow by 32.0 percent from 2014 to 2016 to $14.8 billion according to 451 Research. Cisco forecasts that global data center traffic will triple by 2017 to 7.7 zettabytes, a compound annual growth rate of 25.0 percent. Approximately 70.0 percent of data center spending goes to infrastructure such as servers, networks, storage and energy. The remaining 30.0 percent is spent on the people needed to manage and operate the increasingly complex data center environment. Future employment in the data processing and hosting services industry, to which data centers belong, can be used as a leading indicator of demand. Employment in the data processing & hosting services industry will increase by 17.0 percent from 2014 to , , , , , ,000 Employment Source: IBISWorld, July 2014 Data centers have a significant economic impact on the markets within which they operate, especially as revenue and employment within the industry increases. Consequently, taxes and incentives are often used by government entities to lure data center development to specific municipalities. These programs provide full or partial exemption of sales taxes dependent on certain thresholds. For example, Chicago recently approved a Class 6B property tax break that grants Quality Technology Services approximately $11.4 million in property tax savings in exchange for the conversion of the Chicago-Times printing plant into a 400,000 square-foot data center. The deal allows QTS to proceed with an expensive retrofit and still get the returns they are targeting. For Chicago, it means job growth and transforming an obsolete building into an economic driver for the city. Industry insight IT spending growth is tracking slower than expected due to increased price competition and the adoption of lower cost, typically cloud-based solutions. Data centers typically account for up to 44.0 percent of overall IT spending. According to the Gartner Worldwide IT Spending Forecast, total IT spending in 2014 will top $3.75 trillion worldwide. However, spending growth is expected to accelerate in 2015 as the transition to digital business concludes and the next phase of personal cloud movement infiltrates consumer-focused IT. The rate of IT spending growth is expected to jump 3.7 percent next year 4.0% 3.0% 2.0% 1.0% 2.1% As IT budgets increase, so does the need for companies to cut out redundancies and improve efficiency. This dynamic, along with the increasing connectivity requirements of mobile consumers and workers, has pushed companies away from in-house ownership and management of data centers and toward the multitenant data center market. drivers % Change in worldwide IT spending growth 3.7% 3.6% 3.4% 3.2% 0.0% Source: Gartner Worldwide IT Spending Forecast, Q In addition to the reasons above, companies are leasing third-party data center space to: Mitigate capital expenditures Eliminate resource intensive maintenance responsibilities Lower facility operating expenses Accommodate rapid changes in data and equipment needs 3

4 Gain flexible power densities Access deeper technical expertise and innovations Free up IT resources to focus on value generating business initiatives. In light of some recent high profile data breaches, IT security has gained priority for companies, especially those in healthcare, banking and retail. According to IBM and the Ponemon Institute, 2014 marked a reversal in costs associated with data breaches. After two years of declines, both the cost of a data breach for organizations and the cost per lost or stolen record have increased. The average cost paid by a company in the U.S. in response to a data breach reached $5.9 million this year. The uptick in costs is attributed to the additional expenses required to preserve a company s brand and reputation following the loss of client or customer information. drivers Today s third-party data center landscape is seeing consolidation among large players and new entrants joining the industry. There are hundreds of data center providers in North America and while tier 1 markets are dominated by the industry s largest firms, competition exists from smaller players with one or a few facilities. Adding a layer of complexity is the emergence of hybrid offerings and new services that range from colocation hosting to complete turnkey or custom spaces, access to the open internet exchange, cloud computing, disaster recovery, IaaS and IT services other forms of managed services. As seen in the table below, many of the large providers operate in both market segments. There are distinct differences between retail colocation and wholesale colocation in terms of payment structure, cost and support. But the lines are starting to blur as providers seek to differentiate on connectivity and technologies such as open internet exchanges gain interest. Another dynamic in the third-party provider market is the trend of spinning off assets into an REIT and/or going public. Once public these firms must balance the need to grow with delivering healthy earnings for stakeholders. QTS Realty Trust went public last year and is currently in expansion mode-buying facilities in New Jersey and Chicago and continuing construction in Texas, Georgia, Virginia and California. In contrast, Digital Realty, which was one of the first to go public in 2001, has announced its intent to sell underperforming properties and upgrade some existing facilities. Both Iron Mountain, Equinix and Windstream Holdings Inc. have recently announced that following favorable rulings from the IRS they plan to spin off their real estate assets into an REIT. Market segments Definition Retail colocation A tenant leases typically between 500 and 5,000 square feet of data center space within a cage, cabinet or rack and has power needs of 250 kw or less. Wholesale colocation A tenant leases individual white-space rooms typically ranging in size from 5,000 to 50,000 square feet. Historically, the minimum power threshold has been 1 MW but more recently it has dipped down into the 250 kw range. What the tenant gets Full facility maintenance and systems (fire suppression, security, power backup, HVAC, blended internet) Additional services can include: Remote hands technician Network monitoring services Carrier-neutral network connectivity Cloud backup and replication Typically private suite or cage Maintenance on fire alarm systems, security systems, generator, HVAC and UPS system Greater control and security Build-to-suit services Sale-lease-back option Metered electric Typical tenant type A wide range of customers, from Fortune 1000 to small and medium-sized businesses Companies that need a lot of space and power, want to keep costs low, have stringent regulatory standards, need room for expansion at the same facility and/or require a high level of customization Major providers AT&T CyrusOne ViaWest Telx Equinix QTS Realty Trust Verizon/Terremark Internap CenturyLink CoreSite Digital Realty Trust DuPont Fabros Sabey T5 Datacenters QTS Realty Trust Cyrus One Stream Data Center Raging Wire 4

5 Real estate insight A data center market requires two things: low cost electricity and enormous bandwidth. A tier 1 data center market has this along with low operating costs, fiber availability, low natural disaster risk, accessibility by car and air, attractive government incentives and proximity to businesses with significant data needs. The top data center markets in North America are: North American Data Center market Tier 1 Data Center markets Emerging Data Center markets Atlanta Boston Chicago Dallas Los Angeles New York/New Jersey Northern Virginia Phoenix San Francisco/Silicon Valley Seattle Source: 451 Research The data center market is seeing very competitive pricing due to the large number of options available to tenants in today s market. With the exception of Houston and Toronto, most of the data center markets are tenant-favorable and will remain so through late While leasing activity has been strong, third-party providers have been aggressive with new development and construction largely surpassing demand over the past three years. As a result, there has been a softening in rates in the past 12 to 18 months. Sublease space in markets such as Silicon Valley and Northern Virginia added additional supply to the market as well and further reduced leverage for some providers. Subleasing data center space can be difficult due to a short term remaining on leases, the need for the subtenant to have a tri-party agreement with the landlord and no visibility of extension rights. Therefore, while sublease space does directly compete with direct stock it does so to a lesser degree than seen in the traditional office real estate market. Today, the focus of providers is leasing up existing inventory and improving return on invested capital (ROIC). Looking forward, new inventory will be delivered just-in-time where a shell is ready to go but not built out until a lease is in place. Providers will also be seeking to maintain low cost-to-build with the largest data center companies averaging $7 million or less per megawatt on a fully developed mega site. Houston Philadelphia Miami Toronto Denver Baltimore San Diego Charlotte Cincinnati Las Vegas Minneapolis retail are positioned to capture the strongest demand growth. The data center market sees extremely high renewal rates due to the investment needed to launch a data center and this limits the amount of vacant space hitting the market as well. The window of opportunity is open for tenants seeking data center space and solutions. To compete, providers are offering percent discounts, concessions and tenant improvements on some deals. However, economic and business indicators point to increasing demand and third-party providers are pulling back on construction. By late 2015 and early 2016, leverage will shift toward providers and costs will start to trend upward. Market outlook Atlanta Chicago Dallas-Fort Worth Houston Los Angeles Minneapolis / St. Paul Northern NJ Northern Virginia Phoenix Seattle-Portland Silicon Valley Greater Toronto Area User favorable market Provider favorable market The provider landscape will see continued consolidation especially across borders as third-party providers look to grow through strategic acquisitions. The purchase of Peak 10 by GI Partners, one of the largest private equity players in the data center market, to fuel aggressive expansion plans is an example. Another example is the acquisition made by Canadian company Shaw Communications of ViaWest to rapidly gain a significant share of the North American market. Once the construction pipeline is absorbed, rental rates will firm quickly and companies will have less negotiating room with providers. There is a lot of organic growth in the data center market since tenants typically need more power and space as technology evolves. This is fueling the expansion of existing leases. Markets with a high concentration of tenants in energy, healthcare, finance, technology and 5

6 The North American data center market is expected to grow by 32.0% to $14.8 billion from : 74% of adults By 2016: use social networking 50% of U.S. healthcare systems will use cloud storage In 2014: U.S. retail e-commerce sales increased 15.7% 87% of American adults use the internet and 68% connect via mobile devices Financial firms account for 16% of data center revenue INDUSTRY CORPORATE Companies are moving away from internal IT management 3x TECHNOLOGY 2014: 51% of all workloads will be processed in the cloud In 2017: Global data center traffic will triple to 7.7 Zb By 2018: Global market for cloud equipment will reach $79.1B Outsourcing data center functions is less expensive and improves efficiency In 2014: U.S. companies paid an average of $5.9M for data breaches 6

7 Atlanta Total inventory: 1.5 M s.f. / 150 MW Total commissioned vacant: 117,000 s.f. / 18 MW Under construction: 40,000 s.f. / 7 MW Planned: 160,000 s.f. / 18 MW Net absorption: 11.0 MW < 250 kw: $235 - $375/kW (all in) >250 kw: $125-$150/kW (+E) is being absorbed at a much faster rate now compared to previous years in Atlanta. QTS is adding space at both their metro and their Suwanee facilities. Peak 10 is delivering their first pod in their new Alpharetta facility in September. is coming from all industries (insurance, financial, technology, hospitality, healthcare etc.). Utility rates in the southeast remain very attractive in the $.047 range. GA Power is investing in a large nuclear power plant, and the forecast calls for stable, competitive rates in the future. Overall employment growth, corporate headquarter relocations, and regional office expansions are contributing to an improving economy which directly benefits providers of data center space. Increasing supply in retail and wholesale categories. Aggressive pricing and ramp structures continue in Several significant investment opportunities on the market including E*Trade s data center and GE s data center in Alpharetta. Several providers considering new builds of wholesale and retail space, some looking for anchor tenants to kick off a new building including QTS, Bytegrid, Equinix, Telx, Peer1 and Digital Realty Trust. User favorable market Provider favorable market % 30.0% Banking Financial & Financial Services 15.0% 25.0% Technology Fortune 500 Financial T5 1.5 MW Technology Company QTS ~8 MW Software Company QTS 1 MW 7

8 Chicago Total inventory: 3.3 M s.f. / 420 MW Total commissioned vacant: 147,000 s.f. / 17 MW Under construction: 734,595 s.f. / 118 MW Planned: 1,379,747 s.f. / 201 MW Net absorption: 5.0 MW < 250 kw: $175-$350/kW (all in) >250 kw: $125-$150/kW (+E) has increased significantly in 2014 with providers including QTS, Forsythe, DFT, ByteGrid and Ascent all commencing construction on significant projects. There has been an equal amount of new deliveries in Chicago s two markets with QTS and Ascent building downtown while Forsythe, ByteGrid and DFT build in the suburban market. This development is driven by the high occupancy rates and success of DLR (350 Cermak and Franklin Park), Coresite (427 S LaSalle) and Ascent (505 Railroad). Also fueling this trend is Chicago s continued recognition as a global destination for business, low utility costs, excellent fiber and limited natural disaster risk. reflects the diversity of Chicago business environment with demand coming from technology companies, law firms, financial / trading firms, manufacturing, insurance and healthcare. In response to natural disaster risk mitigation, there is an uptick in national searches focused on the central U.S. and Chicago in particular. Headcount growth at companies like Google, HSBC, Walgreens and Gogo continues to position Chicago as a hub to recruit skilled technical staff. Technology Well funded / sophisticated operators competing hard to fill new deliveries. Aggressive pricing and ramp structures continue in Pricing on leases < 250 kw seeing historic low rents under $180 / kw. Providers proactively courting tenants to anchor new developments. Spec suites will continue to be the best opportunity for success. Aggressive ramps and flexibility in leases can be expected in buildings with high vacancy rates. Rents will stay low and decrease in 2015 as new developments deliver User favorable market Provider favorable market % 10.0% 15.0% 15.0% Retail & E-commerce 40.0% 10.0% Banking & Financial Services Insurance Abbvie CenturyLink 2 MW NextWave Latisys 300 kw SingleHop DLR Franklin Park 2 MW 8

9 Dallas Fort Worth Total inventory: 2.7 M s.f. / 361 MW Total commissioned vacant: 241,600 s.f. / 23 MW Under construction: 155,000 s.f. / 25 MW Planned: 592,000 s.f. / 80 MW Net absorption: 25.5 MW < 250 kw: $250-$350/kW (all in) >250 kw: $125-$150/kW (+E) has been absorbed (25.5 MW) at a rate faster than any other year on record in DFW as of Q Both CONE and QTS are delivering in the third quarter. T5 will deliver 3.5 MW by year-end and DataBank another 1.5 MW. DLR is site ready in Richardson for a singlestory 10 MW or two-story 22.5 MW building but hasn't commenced construction on the shell. is coming from all industries (insurance, financial, technology, hospitality, etc.) with over 50 MW of requirements in the marketplace. This demand is driving existing data center providers and new data entrants to consider Dallas for expansion. As utilities become more important in the central and southwestern United States, providers are locking in on longer-term fixed electrical pricing. Oncor delivered six new generation plants in August. Overall workforce growth, corporate headquarter relocations, and regional office expansion in DFW have created a significant demand for more data center supply. Technology Small window in 2014 with deficit in supply. Aggressive pricing and ramp structures continue in Power costs might increase slightly at the end of Providers racing to get inventory to market. Users will expect rent ramps to offset consolidation costs. Price compression will be less than 5.0 percent in 2014 (annual average is 7.0 percent) User favorable market Provider favorable market % 25.0% Retail & E-commerce 10.0% 20.0% 5.0% 5.0% Banking & Financial Services Insurance Seattle Wireless Co. T5 3.5 MW San Ant Insurance Co. CyrusOne 1 MW San Fran SaaS Co. QTS 3 MW 9

10 Houston Total inventory: 620,600 s.f. Total commissioned vacant: 74,500 s.f. / 9.8 MW Under construction: 144,000 s.f. / MW Planned: 527,484 s.f. / MW Net absorption: 8.1 MW < 250 kw: $260-$360/kW (all in) >250 kw: $140-$160/kW (+E) has been absorbed (~8 MW) at a stable rate, much of which is explosive growth of HPC (high performance computing) environments. New supply is being built-out with CyrusOne delivering 44,000 square feet with runway for significantly more space. Data Foundry will bring online a 250,000-square-foot building in 2015 with up to 50 MWs of future capacity available. is coming from all industries due to the significant population and job growth in the Houston market. The largest demand is still coming from the oil and gas sector as technology is critical to drilling and exploration efforts. is also coming from healthcare and financial services industries. This demand is driving existing Houston data center providers and new data entrants to consider Houston for additional expansion. As HPC becomes more important to the exploration of oil and gas, companies are outsourcing more of this technology to colocation operators that can handle the high density computing environments needed to run seismic data. 20.0% 20.0% 5.0% 5.0% 5.0% 45.0% Oil & Gas Retail & E-commerce Banking & Financial Services Insurance Small window in 2014 with deficit in supply. Pricing will compress 1Q15 with new supply on line. Power costs might increase slightly to the end of Providers racing to get inventory to market. Users will expect rent ramps to offset migration costs. Price compression will be more than 5.0 percent in CyrusOne Web Hosting Industry 1.5 MW CyrusOne Oil & Gas Industry 900 kw Tenant-favorable market Landlord-favorable market Stream Oil & Gas Industry 1.3 MW 10

11 Los Angeles Total inventory: 4.0 M s.f. / 210 MW Total commissioned vacant: 480,000 s.f. / 25 MW Under construction: 0 s.f. / 0 MW Planned: 0 s.f. / 0 MW Net absorption: 5.0 M 7.0 M MW < 250 kw: $215-$275/kW (all in) >250 kw: $135-$145/kW (+E) There has been no lack of supply as users have plenty of choices within the Los Angeles area. El Segundo continues to be the primary choice as options are limited in Downtown Los Angeles. in Los Angeles remains weak as users have decided to focus on other markets like Phoenix and Las Vegas. However, the growth of social media and entertainment will keep the market stable. One Wilshire is percent occupied which is forcing users to look elsewhere. Colocation providers continue to search for new opportunities to expand the demand of small users. Los Angeles has become a market of small users that are dealing with organic growth. Electric power rates have remained steady over the last few years at around $0.13 per kw. In some markets, Southern California Edison and Burbank Water and Power offer rates as low as of $0.8 per kw. In 2015, power rates are expected to jump to around $0.15 cents per kw. Technology Plenty of options in the market. Entertainment and technology will continue to drive transaction activity. Providers continue to compete for tenants. Aggressive pricing structures exist due to lack of demand. Average deals are KW Tenant-favorable market Landlord-favorable market % 35.0% Retail & E-commerce 5.0% 5.0% Banking & Financial Services 10.0% 20.0% Media & Entertainment LAX Airport T5 1 MW SpaceX Internap 500 kw T5 Anonymous enterprise 2 MW 11

12 Minneapolis/St. Paul Total inventory: 302,139 s.f. / 40 MW Total commissioned vacant: 88,500 s.f. / 12 MW Under construction: 30,000 s.f. / 4 MW Planned: 131,000 s.f. / 17 MW Net absorption: 2.2 MW < 250 kw: $250-$350/kW (all in) >250 kw: $145-$190/kW (+E) is at an all-time high as the Twin Cities has seen unprecedented development of new facilities by regional and national colocation providers. Stream Data Centers, ViaWest and CenturyLink Technology Solutions have commissioned a combined 75,000 raised floor square feet or 10 MW of data center space in new, purpose-built facilities since the first of the year. Additionally, a fourth provider, DataBank, is currently under construction on their new 90,000-square-foot facility which is expected to deliver 1.5 MW in the first quarter of is increasing now that there are numerous options for both retail and wholesale colocation within the Twin Cities marketplace. Prior to this year, colocation options for requirements over 250 kw were extremely limited. Recently passed data center tax incentives allow tenants of qualifying colocation facilities a sales tax abatement on all power costs and a sales tax rebates on all hardware and software purchases. This is one of the most aggressive incentives in the country and has begun to put Minneapolis/St. Paul on the map for out-of-state companies looking for colocation space. 37.0% % 31.0% Technology Retail & E-commerce Manufacturing and options are at an all-time high. Aggressive pricing and ramp structures because of new product influx. Ability for smaller users to get tax rebates through qualifying colo facilities. New entrants to market will taper as product comes online. Users will expect tax incentives and a variety of options. Pricing will compress as more product hits market Tenant-favorable market Landlord-favorable market 3.0% 13.0% 10.0% Insurance FICO CenturyLink 300 kw Ucare Unisys 150 kw Essentia Health Involta 400 MW 12

13 Northern New Jersey Total Inventory: 3.2 M s.f. / 324MW Total commissioned vacant: 256,000 s.f./28mw Under construction: 186,000 s.f. / 21MW Planned: 876,000s.f. / 104MW Net absorption: 5.0 MW < 250 kw: $190-$300/kW (all in) > 250 kw: $105-$175/kW (+E) has nearly doubled over the past 24 months with new colocation facilities opening throughout the region. This along with other factors is putting downward pricing pressure on both wholesale and retail colocation rental rates. Currently JLL is tracking more than 100,000 square feet of either recently completed or under construction wholesale grade product. leveled off during the first half off 2014 after a strong But recent trends have indicated a new momentum in demand coming from the historically active sectors including financial services, healthcare and pharmaceuticals. In addition to these traditional players, new sectors such as media, bitcoin and internet content providers have entered the NY-Metro market with some regularity. As power contracts renew, users and colocation providers are benefiting from lower electricity rates, along with hedging practices. 7.0% 8.0% Technology 3.0% is outpacing demand. Historical low rates quoted. Continued downward pressure on cost and risk. Increased competition by new providers. at an all-time high. Just takes a few deals to level market. Occupiers looking for low cost alternatives for less critical data User favorable market Provider favorable market Banking & Financial Services Media & Entertainment 84.0% Bitcoin Company IO 2.5 MW Financial Services Sentinel Data Center 1.5 MW Financial Services Digital Realty 3 MW 13

14 Northern Virginia Total inventory: 2.4 M s.f. / MW Total commissioned vacant: 605,263 s.f. / MW Under construction: 107,400 s.f. / 20.8 MW Planned: 882,150 s.f. / MW Net absorption: 19.4 MW < 250 kw: $235-$320/kW (all in) >250 kw: $120-$140/kW (+E) Market confluence is dominated by new supply offerings with major developments under way by CyrusOne, DFT, DLR and CoreSite. QTS will deliver a 1.3 million-square-foot/100 MW facility in Richmond. This will undoubtedly provide meaningful power and space options over the coming quarters. Sublease space adds pressure for third-party providers with more than 30 MWs of inventory. Technology dominates demand and is the force driving new deployments. But there is continued demand across all industry segments. Utilities rates are stable and very cost competitive compared to Tier 1 MSAs. While overall employment growth is weak compared to historical norms, demand for data center workers has accelerated. The region is home to a skilled knowledge based IT workforce. Aerospace & Defense Market leader for cloud computing with best in class latency. Historic pricing and concessions continue well into Power costs remain steady and predictable. Limited powered shell building options. Price compression will continue into 2015 as supply imbalance dominates market fundamentals. Competition will force aggressive pricing, concessions and deal velocity. Competition widens with new market entries and comprehensive service offerings User favorable market Provider favorable market % 12.0% Banking & Financial Services Government 53.0% 15.0% Insurance 1.0% 2.0% 5.0% Retail & E-commerce Technology & GoDaddy DFT ACC7 2.8 MW PNC. QTS 4 MW Level3 Powered Shell - Purchase 50,000 s.f. 14

15 Phoenix Total inventory : 1.3 M s.f. / 174 MW Total commissioned vacant: 120, 000 s.f./ 16 MW Under construction: 81,000 s.f. / 16 MW Planned: 251,000 s.f. / 40 MW Net absorption: 22.7 MW < 250 kw: $250-$325/kW (all-in) > 250 kw: $130-$150/kW (+E) continues to see significant growth as a majority of West Coastbased companies consider metropolitan Phoenix valley as one of the top five markets for their data center needs. Recent supply in the valley has been absorbed quickly by telecom and technology companies and this has put pressure on providers to build new colocation facilities. National providers such as QTS, Ascent and Switch are strongly considering new entry into the Phoenix market. has been modest during the first half of 2014, following strong activity in Market trends indicate price stabilization on lease and purchase rates for wholesale colocation facilities. Technology companies in the metropolitan Phoenix valley are experiencing global and local growth and this fuels organic demand. Tenants continue to seek maximum flexibility in colocation facilities as enterprises try to avoid overcommitting power. Power costs remain an intriguing factor to influence out-of-state enterprises to relocate to Arizona. Longer-term contracts between utility companies and colocation providers is an upward trend in the local market. 10.0% 20.0% Retail & E-commerce Technology Deficit in supply until CyrusOne delivers new facility in the fourth quarter. Aggressive pricing and ramp structures will tighten up. Continued attraction to the market due to AZ Data Center Tax Exemption. Race to deliver new inventory to the market (CyrusOne, PhoenixNAP). Users will expect rent ramps to offset consolidation costs. Price increase will include additional services going into User favorable market Provider favorable market % 15.0% 20.0% Banking & Financial Services 20.0% Insurance Bitcoin Company CyrusOne 8 MW CenturyLink IO 9 MW Banking Software Co. Digital Realty 1.35 MW 15

16 Seattle-Portland Total inventory: 2.5 M s.f. / 312 MW Total commissioned vacant: 595,105 s.f. / 86 MW Under construction: 42,100 s.f. / 8 MW Planned: 259,000 s.f. / 36 MW Net absorption: 15.0 MW < 250 kw: $200-$300/kW (all in) >250 kw: $125-$145/kW (+E) There is a major increase in data center activity in the Seattle- Portland area. is primarily driven by colocation users and a few large enterprise users. There is strong user demand generated by the extremely inexpensive power ($2.5 cents/kw) in Eastern Washington and the Tax Enterprise Zones in Oregon. There is an abundance of retail colocation options available. One of the features that makes Seattle-Portland an attractive data center market is its strong network backbone. Cloud users and content delivery companies are expanding their data center presence here. The market is a major technology hub and that is resulting in immediate data center requirements. 5% 8% 2% Technology Few options for large requirements in Seattle; abundance of availability for smaller users (<250kW). Large users active in rural areas. Power costs are stable; leasing costs continue to rise in urban areas. Providers racing to get inventory to market. increasing from retail users that are regionally based. Hot investment market User favorable market Provider favorable market 20% 45% Retail & E-commerce Banking & Financial Services 20% Insurance Group Health Sabey 300 kw Comcast T5 6-9 MW EdgeConnex RREEF 4 MW 16

17 Silicon Valley Total inventory : 3.6 M s.f. / 348 MW Total commissioned vacant: 73,000 s.f./ 16 MW Under construction: 44,000s.f. / 9 MW Planned: 384,000 s.f. / 58 MW Net absorption: 20.5 MW < 250 kw: $250-$325/kW (all-in) > 250 kw: $125-$140/kW (+E), Inventory levels have dropped to a historically low level of turnkey product and although many projects are planned most have yet begun construction. Absorption in Q2 and Q3 was above average with multi megawatt deals being signed by cloud providers and software companies and has stabilized the rental rates and put increased pressure on certain providers to build new powered shell and turnkey product., has been consistent in 2014 and has seen increased activity over Low inventory levels and a lack of construction suggest pricing corrections on wholesale and colocation leasing rates. Local technology companies, mobile applications and cloud requirements will continue to drive organic growth. Power, costs in Santa Clara (SVP) remain the lowest in the region and is the driving factor in the success in this market. Power rates are $0.2 to $0.05 per kwh less than PG&E and makes for an important factor to keep local companies from moving to other regions. 15.0% 10.0% Retail & E-commerce 20.0% Technology Financial Services will be constrained by years end and until Dupont Fabros and Coresite bring additional capacity online. Pricing has stabilized and is beginning to trend upwards Larger contiguous space will be difficult to obtain in the Silicon Valley Providers like Coresite, Vantage and Dupont Fabros will have an opportunity to take up marketshare with new construction projects Users will expect rent ramps to offset consolidation costs Price increase will drive customers to other states User favorable market Provider favorable market % 20.0% 20.0% Insurance Microsoft Dupont Fabros 6 MW Alibaba Coresite 3 MW Navisite. Digital Realty 3.6 MW 17

18 Greater Toronto Area (GTA) Total inventory: 1.5 M s.f/ NA MW Total commissioned vacant: 300,000 s.f. / 40 MW Under construction: NA s.f. / 2 MW Planned: 489,000 s.f. / 101 MW Net absorption: 5 MW <250 kw: $250-$550/kW (all in) >250 kw : $150-$190/kW (+E) both across Canada and within the Toronto and Southern Ontario area has historically been limited. Recent successful data center developments have helped amplify interest from both international and domestic data center operators. is coming from all industries (insurance, financial, technology, hospitality, etc.). Current planned data center premises forecast for potential occupancy within the next 24 months could have a significant impact on future pricing metrics. Pressure on pricing and quality of infrastructure for existing providers is forecast. New data centers currently being planned are expected to offer significant competition within a market that has historically seen limited new supply. 8.0% 2.0% Banking & Financial Services 11.0% 45.0% Insurance 12.0% Significant number of planned opportunities. Flight to improved Tier level projected with new options coming to market. Power costs projected to increase which should translate into additional demand for reduced PUE and data center efficiencies. Providers racing to get inventory to market. Significant future competition is forecast to increase pressure on pricing and data center efficiencies Tenant-favorable market Landlord-favorable market % Retail & E-commerce Manufacturing Soft Layer Digital Realty 2.5 MW Technology Firm Cologix 300 kw 18

19 Contacts For more information, please contact: Americas Research Lauren Picariello Atlanta Mike Dolan Ryan Fetz Chicago Matt Carolan Andy Cvengros Sean Reynolds Dallas Fort Worth Bo Bond Ali Greenwood Curt Holcomb Houston Bo Bond Ali Greenwood Curt Holcomb Los Angeles Darren Eades Jordan Gaffney Northern New Jersey Jon Meisel Sumner Putnam Thomas Reilly Northern Virginia Allen Tucker Jeff Groh Minneapolis/St. Paul Brett Severson Brian Ginkel Phoenix Mark Bauer Mark Stratman Jr Greater Toronto Area Stuart Cox Seattle-Portland Conan Lee Danny Jackson Silicon Valley Chris Sumter

20 About JLL JLL (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $4.0 billion, JLL operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 3.0 billion square feet. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management. For further information, visit About JLL Data Center Solutions JLL s global Data Center Solutions team has delivered customized data center services and strategies to many of the world s largest corporations. With the expertise of having managed 1110 megawatts of critical facilities transactions, our team assists companies with total site selection (from greenfield to colocation to cloud) utilizing best in class due diligence, in-depth TCO analysis and comparisons, risk and infrastructure assessments, project development services, migration consulting, contract and SLA negotiations, and budget preparations. Our capital markets group has deep experience in the data center industry from investment property sales to debt financing and our critical facilities management team oversees 92 million square feet of critical environments. We understand the technical elements that are crucial to your facility in terms of power, cooling, fiber, latency, utilities, redundancy, taxes, construction, public incentives and security. JLL s Data Center Solutions team will help you determine the best IT and data center strategy to meet your business objectives. About JLL Research JLL s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without prior written consent of Jones Lang LaSalle IP, Inc. COPYRIGHT JONES LANG LASALLE IP, INC. 2014