JLL North America Data Center Overview 2014

Data Center Outlook

North America | 2014

Table of contents

2

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

JLL | North America | Data Center Outlook | 2014

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.

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.

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.

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.

Demand drivers

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

The rate of IT spending growth is expected to jump 3.7 percent next year

Employment in the data processing & hosting services industry will increase by 17.0 percent from 2014 to 2019

0

100,000

200,000

300,000

400,000

500,000

600,000

2005 2007 2009 2011 2013 2015 2017 2019

Employment 2.1%

3.7% 3.6%3.4%

3.2%

0.0%

1.0%

2.0%

3.0%

4.0%

2014 2015 2016 2017 2018

% Change in worldwide IT spending growth

Cisco forecasts that global data center traffic will triple by 2017 to 7.7 zettabytes, a compound annual growth rate of 25.0 percent.

3


Source: IBISWorld, July 2014

Source: Gartner Worldwide IT Spending Forecast, Q2 2014

Retail colocation Wholesale colocation

Definition 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.

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

Market segments

• 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.

Supply 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 WindstreamHoldings Inc. have recently announced that following favorable rulings from the IRS they plan to spin off their real estate assets into an REIT.

4JLL | North America | Data Center Outlook | 2014

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:

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 2015. 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.

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

retail are positioned to capture the strongest demand growth. Thedata 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.

Outlook

The window of opportunity is open for tenants seeking data center space and solutions. To compete, providers are offering 10.0-15.0 percentdiscounts, concessions and tenant improvements on some deals. However, economic and business indicators point to increasing demandand 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.

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.

North American Data Center marketTier 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

Houston Philadelphia Miami Toronto Denver Baltimore San Diego Charlotte Cincinnati Las Vegas MinneapolisSource: 451 Research

Market outlook

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Atlanta

Chicago

Dallas-Fort Worth

Houston

Los Angeles

Minneapolis / St. Paul

Northern NJ

Northern Virginia

Phoenix

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15Greater Toronto Area

Seattle-Portland Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

User favorable marketNeutral marketProvider favorable market


Q3 14 Q4 14 Q1 15 Q2 15 Q3 15Silicon Valley

6

The North American data center market is expected to

grow by 32.0% to $14.8 billion from 2014–2016

2014:

51% of all workloads will be processed in the cloud

TECHNOLOGY

CORPORATE

In 2017: Global data center traffic will triple to

7.7 Zb

3x

$79.1B

By 2018: Global market for cloud equipment will reach

2014:

74% of adults use social networkingBy 2016:

50% of U.S. healthcare systems will use cloud storage

In 2014: U.S. retail e-commercesales 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

Companies are moving awayfrom internal IT management

Outsourcing data center functions is less expensive and improves efficiency

In 2014: U.S. companies paid an average of

$5.9M for data breeches


Multiyear electricity | Average power rate

Outlook

for Users

• Increasing supply in retail and wholesale categories.• Aggressive pricing and ramp structures continue in 2014.

for Providers

• 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 .

Data center overview

Supply 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.

Demand 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.

User demand by industry

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 ▲

SupplyNet absorption: 11.0 MW ▲

Demand< 250 kW: $235 - $375/kW (all in)>250 kW: $125-$150/kW (+E)

Rental rates

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15User favorable marketNeutral marketProvider favorable market

6.2 5.5 4.85 4.8 4.7

0.0

2.0

4.0

6.0

8.0

2010 2011 2012 2013 2014

Cos

t per

kW

30.0%

25.0%15.0%

30.0%

Financial

Healthcare

Telecom

Technology

Banking & Financial Services

Fortune 500 FinancialT51.5 MW

Software CompanyQTS1 MW

2014 significant data center transactions

Technology CompanyQTS~8 MW

Atlanta



Technology

Telecom

Retail & E-commerce

Banking & FinancialServices

Healthcare

Insurance


Outlook

for Users

• Well funded / sophisticated operators competing hard to fill new deliveries.

• Aggressive pricing and ramp structures continue in 2015.• Pricing on leases < 250 kW seeing historic low rents under $180 / kW.

for Providers

• 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.


Supply 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.

Demand 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.

AbbvieCenturyLink2 MW

NextWaveLatisys300 kW

SingleHopDLR –Franklin Park2 MW


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 ▲


Demand< 250 kW: $175-$350/kW (all in)>250 kW: $125-$150/kW (+E)

Rental rates

15.0%

10.0%

10.0%

40.0%

15.0%

10.0%


6.5 6.5

6.0 6.0

5.5

5.0

5.5

6.0

6.5

7.0

2010 2011 2012 2013 2014

Cos

t per

kW

8

Chicago



Technology

Telecom

Retail & E-commerce


Healthcare

Insurance


Outlook

for Users

• Small window in 2014 with deficit in supply.• Aggressive pricing and ramp structures continue in 2014.• Power costs might increase slightly at the end of 2014.

for Providers

• 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).

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 ▲



Rental rates


Supply has been absorbed (25.5 MW) at a rate faster than any other year on record in DFW as of Q2 2014. 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 single-story 10 MW or two-story 22.5 MW building but hasn't commenced construction on the shell.

Demand 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.

Seattle Wireless Co.T53.5 MW

San Ant Insurance Co. CyrusOne1 MW

San Fran SaaS Co.QTS3 MW


25.0%

35.0%

10.0%20.0%

5.0%

5.0%


7.2 7.0

6.0 6.0 5.8

5.05.56.06.57.07.5

2010 2011 2012 2013 2014

Cos

t per

kW

9

Dallas – Fort Worth



Outlook

for Users

• 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 2014.

for Providers

• 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 2015.

Total inventory: 620,600 s.f.Total commissioned vacant: 74,500 s.f. / 9.8 MW ▲Under construction: 144,000 s.f. / 24.00 MW ▲Planned: 527,484 s.f. / 62.20 MW ▲


Demand< 250 kW: $260-$360/kW (all in) >250 kW: $140-$160/kW (+E)

Rental rates


Supply 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.

Demand 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. Demand 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.

CyrusOneWeb Hosting Industry1.5 MW

CyrusOneOil & Gas Industry900 kW

StreamOil & Gas Industry1.3 MW



Q3 14 Q4 14 Q1 15 Q2 15 Q3 15Tenant-favorable marketNeutral marketLandlord-favorable market

8.1

6.9 6.9 6.7 6.6

5.0

6.0

7.0

8.0

9.0

2010 2011 2012 2013 2014

Cos

t per

kW

45.0%

5.0%5.0%

20.0%

20.0%

5.0%

Oil & Gas

Telecom

Retail

Financial Services

Healthcare

Insurance

10

Houston

& E-commerce

Banking &




Outlook

for Users

• Plenty of options in the market.• Entertainment and technology will continue to drive transaction activity.

for Providers

• Providers continue to compete for tenants.• Aggressive pricing structures exist due to lack of demand.• Average deals are 25-50 KW.

Total inventory: 4.0 M s.f. / 210 MW Total commissioned vacant: 480,000 s.f. / 25 MW ▲Under construction: 0 s.f. / 0 MWPlanned: 0 s.f. / 0 MW

SupplyNet absorption: 5.0 M – 7.0 M MW ▲


Rental rates


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.

Demand 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 100.0 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.

LAX AirportT51 MW

SpaceXInternap500 kW

T5Anonymous enterprise2 MW



11

Los Angeles

25.0%

5.0%5.0%

20.0%10.0%

35.0%

Technology

Telecom

Retail & E-commerce

Banking & FinancialServicesHealthcare

Media &Entertainment


13.0 13.0 13.0 13.0 13.0

5.07.09.0

11.013.015.0

2010 2011 2012 2013 2014

Cos

t per

kW


31.0%

10.0%

13.0%3.0%

37.0%

6.0% Technology

Telecom

Retail & E-commerce

Manufacturing

Healthcare

Insurance


Outlook

for Users

• Supply 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.

for Providers

• 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.

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 ▲



Rental rates


Supply 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 2015.

Demand 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.

FICOCenturyLink 300 kW

UcareUnisys150 kW

Essentia HealthInvolta400 MW



12

Minneapolis/St. Paul

14.8 14.8 14.8 14.8 15.3

5.0

10.0

15.0

20.0

2010 2011 2012 2013 2014

Cos

t per

kW



Outlook

for Users

• Supply is outpacing demand.• Historical low rates quoted.• Continued downward pressure on cost and risk.

for Providers

• Increased competition by new providers.• Supply at an all-time high.• Just takes a few deals to level market.• Occupiers looking for low cost alternatives for less critical data.

Total Inventory: 3.2 M s.f. / 324MWTotal commissioned vacant: 256,000 s.f./28MW▲Under construction: 186,000 s.f. / 21MW ▼Planned: 876,000s.f. / 104MW ▼


Demand< 250 kW: $190-$300/kW (all in)> 250 kW: $105-$175/kW (+E)

Rental rates


Supply 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.

Demand leveled off during the first half off 2014 after a strong 2013. 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.

Bitcoin CompanyIO2.5 MW

Financial ServicesSentinel Data Center1.5 MW

Financial ServicesDigital Realty3 MW




13

Northern New Jersey

8.0%

84.0%

3.0%7.0% Technology

Banking &Financial Services

Media &Entertainment

Healthcare

11.09.0 8.5 8.5 9.0

0

5

10

15

2010 2011 2012 2013 2014

Cos

t per

kW



11.0%

12.0%

15.0%

1.0%2.0%

5.0%

53.0%

Aerospace & Defense

Banking & FinancialServicesGovernment

Healthcare

Insurance

Retail & E-commerce

Technology &Telecom


Outlook

for Users

• Market leader for cloud computing with best in class latency.• Historic pricing and concessions continue well into 2015.• Power costs remain steady and predictable.• Limited powered shell building options.

for Providers

• Price compression will continue into 2015 as supply imbalancedominates market fundamentals.

• Competition will force aggressive pricing, concessions and deal velocity.• Competition widens with new market entries and comprehensive

service offerings.

Total inventory: 2.4 M s.f. / 498.3 MW Total commissioned vacant: 605,263 s.f. / 115.9 MW ▲Under construction: 107,400 s.f. / 20.8 MW ▲Planned: 882,150 s.f. / 176.2 MW ▲



Rental rates


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.

GoDaddyDFT – ACC72.8 MW

PNC. QTS4 MW

Level3Powered Shell -Purchase50,000 s.f.



5.8 6.0 6.1 6.0

5.7

5.0

5.5

6.0

6.5

2010 2011 2012 2013 2014

Cos

t per

kW

14

Northern Virginia



Outlook

for Users

• 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.

for Providers

• 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 2015.

Total inventory : 1.3 M s.f. / 174 MWTotal commissioned vacant: 120, 000 s.f./ 16 MW ▲Under construction: 81,000 s.f. / 16 MW▲Planned: 251,000 s.f. / 40 MW ▲


Demand< 250 kW: $250-$325/kW (all-in)> 250 kW: $130-$150/kW (+E)

Rental rates


Supply continues to see significant growth as a majority of West Coast-based 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.

Demand has been modest during the first half of 2014, following strong activity in 2013. 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.

Bitcoin CompanyCyrusOne8 MW

CenturyLink IO9 MW

Banking Software Co. Digital Realty1.35 MW



20.0%

20.0%

20.0%

15.0%

15.0%

10.0%Retail & E-commerce

Technology


Telecom

Healthcare

Insurance


6.6 6.66.5

6.26.3

6.0

6.2

6.4

6.6

6.8

2010 2011 2012 2013 2014

Cos

t per

kW

15

Phoenix



Outlook

for Users

• 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.

for Providers

• Providers racing to get inventory to market.• Demand increasing from retail users that are regionally based.• Hot investment market.

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 ▲



Rental rates


There is a major increase in data center activity in the Seattle-Portland area.

Demand 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.

Group HealthSabey300 kW

Comcast T5 6-9 MW

EdgeConnexRREEF4 MW




16

Seattle-Portland

6.2 6.3 6.3 6.4 6.4

5.0

5.5

6.0

6.5

2010 2011 2012 2013 2014

Cos

t per

kW

45%

20%

20%

5%8% 2% Technology

Telecom

Retail & E-commerce

Banking & FinancialServicesHealthcare

Insurance



Outlook

for Users

• Supply 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

for Providers

• 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.

Total inventory : 3.6 M s.f. / 348 MWTotal commissioned vacant: 73,000 s.f./ 16 MWUnder construction: 44,000s.f. / 9 MW▲Planned: 384,000 s.f. / 58 MW ▲


Demand< 250 kW: $250-$325/kW (all-in)> 250 kW: $125-$140/kW (+E)

Rental rates


Supply, 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.

Demand, has been consistent in 2014 and has seen increased activity over 2013. 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..

MicrosoftDupont Fabros6 MW

AlibabaCoresite3 MW

Navisite . Digital Realty3.6 MW




17

Silicon Valley


20.0%

20.0%

20.0%

15.0%

15.0%

10.0% Retail & E-commerce

Technology

Financial Services

Telecom

Healthcare

Insurance

6.6 6.66.5

6.26.3

6.0

6.2

6.4

6.6

6.8

2010 2011 2012 2013 2014

Cos

t per

kW


45.0%

22.0%

12.0%

11.0%

8.0%2.0%


Healthcare

Insurance

Telecom

Retail & E-commerce

Manufacturing


Outlook

for Users

• 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.

for Providers

• Providers racing to get inventory to market.• Significant future competition is forecast to increase pressure on pricing

and data center efficiencies.

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 ▲

SupplyNet absorption: 5 MW ▲

Demand<250 kW: $250-$550/kW (all in)>250 kW : $150-$190/kW (+E)

Rental rates


Supply 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.

Demand 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.

Soft LayerDigital Realty2.5 MW

Technology FirmCologix300 kW



18

Greater Toronto Area (GTA)

6.0 6.6

7.5 7.9 8.9

5.06.07.08.09.0

10.0

2010 2011 2012 2013 2014

Cos

t per

kW


For more information, please contact:

Americas ResearchLauren Picariello +1 617 531 4208 [email protected]

AtlantaMike Dolan +1 404 995 2432 [email protected]

Ryan Fetz+1 404 995 2132 [email protected]

ChicagoMatt Carolan+1 312 228 2513 [email protected]

Andy Cvengros+1 312 228 3202 [email protected]

Sean Reynolds +1 312 228 3091 [email protected]

Dallas – Fort WorthBo Bond +1 214 438 6238 [email protected]

Ali Greenwood +1 214 438 6237 [email protected]

Curt Holcomb +1 214 438 6240 [email protected]

HoustonBo Bond +1 214 438 6238 [email protected]

Ali Greenwood +1 214 438 6237 [email protected]

Curt Holcomb +1 214 438 [email protected]

Los AngelesDarren Eades+1 213 239 6061 [email protected]

Jordan Gaffney +1 213 239 [email protected]

Northern New JerseyJon Meisel+1 973 404 [email protected]

Sumner Putnam +1 973 404 [email protected]

Thomas Reilly+1 973 404 [email protected]

Northern Virginia Allen Tucker +1 703 891 8396 [email protected]

Jeff Groh +1 703 485 8833 [email protected]

Minneapolis/St. PaulBrett Severson +1 612 217 5143 [email protected]

Brian Ginkel+1 612 217 5127 [email protected]

PhoenixMark Bauer +1 602 282 6259 [email protected]

Mark Stratman Jr +1 602 282 6260 [email protected]

Greater Toronto AreaStuart Cox +1 416 525 4132 [email protected]

Seattle-PortlandConan Lee +1 206 607 1723 [email protected]

Danny Jackson +1 206 607 [email protected]

Silicon ValleyChris Sumter+1 650 354 [email protected]

Contacts


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 www.jll.com.

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

JLL North America Data Center Overview 2014

Documents

Transcript of JLL North America Data Center Overview 2014