Data centers in Santa Clara, San Jose, and San Francisco form the foundation for the Northern California or Silicon Valley colocation, wholesale, and cloud data center market. Despite being the largest data center cluster on the west coast of the United States, Northern California’s vacancy rate is the lowest in the country, showcasing the immense demand for compute and storage capacity in Silicon Valley.
In total, Northern California (Silicon Valley) has 150+ data centers with 600+ megawatts of multi-tenant commissioned power. The market’s significant data center presence has been driven by factors including its history as an internet exchange point (IXP), as well as its network and cloud ecosystem.
Dgtl Infra provides an in-depth overview of data centers in Northern California (Silicon Valley), organized by the cities where they are located, namely Santa Clara, San Jose, Sunnyvale, Palo Alto, Milpitas, San Francisco, and Sacramento. Additionally, we explore several reasons as to why there are so many data centers concentrated in the Northern California / Silicon Valley area. Finally, Dgtl Infra highlights the three main types of data center operators in Northern California (Silicon Valley): cloud, wholesale, and retail colocation.
Northern California (Silicon Valley) Data Centers
Northern California, also known as Silicon Valley, is the second-largest data center market in the United States with more than 150 data centers and over 600 megawatts of multi-tenant commissioned power.
Silicon Valley forms part of the San Francisco Bay Area and serves the data center requirements of major technology companies and start-ups, as well as large enterprises in a variety of industries.
While Northern California is the second-largest data center market in the United States, it remains less than 1/4 of the size of Northern Virginia, which is the largest data center market in the country, with over 2,400 megawatts of multi-tenant commissioned power.
To this end, Northern California’s data center supply has historically grown and is expected to continue growing at a much slower pace than Northern Virginia, due to two fundamental components: power and land.
In Northern California, power procurement and data center site acquisition are more challenging because of a constrained power supply and the difficulty to assemble land in the area. Additionally, the entitlement process for new developments, including density, design, zoning, and permitting approvals, take much longer to receive in Northern California, as compared to other Tier-1 data center markets in the United States. Ultimately, longer entitlement processes elongate development timelines, hindering data center supply growth.
At the same time, demand for data center capacity in Northern California has remained robust over the past few years, with 35 megawatts to 80 megawatts of absorption annually. Given Northern California’s supply and demand dynamic, the market’s vacancy rate has dropped below 3%, highlighting its supply-constrained position.
Data Center Customers in Silicon Valley
Silicon Valley’s technology industry has fueled much of the market’s data center growth, with companies including Apple, Google, Meta Platforms (Facebook), Netflix, Nvidia, Salesforce, Twitter, Uber, and Workday all headquartered and leasing capacity in the area. Additionally, retail colocation provider Cyxtera and cloud service provider Oracle Cloud have contributed to Silicon Valley’s recent data center leasing.
Power in Silicon Valley
Pacific Gas & Electric (PG&E) and Silicon Valley Power (SVP) are the main power providers serving the Northern California (Silicon Valley) market.
Notably, electricity rates for Northern California are among the highest for Tier-1 data center markets in the United States. Specifically, electricity rates in Northern California can be bifurcated as follows, since Santa Clara offers lower power costs:
- Santa Clara: electricity rates average ~$0.10 per kilowatt-hour (kWh)
- Silicon Valley (excluding Santa Clara): electricity rates average between $0.12 to $0.15 per kilowatt-hour (kWh)
As noted previously, Northern California has a constrained power supply. To this end, DigitalBridge, which owns a stake in one of Silicon Valley’s largest hyperscale data center operators, Vantage Data Centers, recently elaborated on Northern California’s power supply issues:
“The power grid in California is somewhat compromised. Pacific Gas & Electric really can’t supply any material amount of new megawatts in the Santa Clara area or San Jose. Silicon Valley Power currently is constrained in terms of what they can deliver. The next upgrade to that grid is 2025. So Santa Clara has become a very capacity-tight market.” – Marc Ganzi – DigitalBridge’s CEO – August 4, 2022
Where are the Data Centers in Northern California?
The Northern California market includes data centers located in the cities of Santa Clara, San Jose, Sunnyvale, Palo Alto, Milpitas, San Francisco, and Sacramento. More specifically, the largest concentration of computing capacity in the Silicon Valley market resides in the cities of Santa Clara and San Jose, which are both located south of San Francisco.
Santa Clara – Data Centers
Santa Clara comprises more than 50% of Northern California’s colocation data center capacity but only ~1/3rd of its total number of facilities. More precisely, Santa Clara has over 350 megawatts of multi-tenant commissioned power across more than 50 data centers.
Within Northern California, Santa Clara has become the data center hub in large part due to Silicon Valley Power (SVP), the municipal electric utility which has consistently offered lower power costs to data center users, relative to the broader Northern California market. Particularly, Silicon Valley Power provides a 20% to 40% lower power cost than surrounding municipalities.
The Santa Clara market is characterized by serving large-scale and high-density compute workloads from hyperscalers such as the cloud service providers (CSPs), over-the-top (OTT) media service companies, and artificial intelligence (AI) businesses. Of critical importance for customers with large-scale and high-density compute workloads is Santa Clara’s lower power costs.
In addition, Silicon Valley Power leases its own dark fiber infrastructure (comprising over 150 fiber route miles), to carriers, large enterprises, and data center operators in Santa Clara. To this end, the utility states that 90% of the data centers and colocation facilities in Santa Clara utilize the system. Examples of these data center operators in Santa Clara are Digital Realty, Vantage Data Centers, Equinix, CoreSite, and Cyxtera.
San Jose – Data Centers
San Jose, which is directly to the southeast of Santa Clara, is another major data center cluster in Northern California with more than 10 facilities. This market is characterized by delivering interconnection services, such as cross connects, given its strong fiber connectivity to technology companies in San Francisco, Internet backbones, and a high density of cloud on-ramps, including AWS Direct Connect, Azure ExpressRoute, and Google Cloud Interconnect.
Historically, downtown San Jose was the location of MAE-West, a major internet exchange point (IXP) for the west coast of the United States, where internet service providers (ISPs) could exchange data at a centralized point.
Presently, the primary data center and connectivity hub in San Jose is operated by colocation provider Equinix, through its Great Oaks campus. While another colocation provider, CoreSite, hosts its SV1 data center in San Jose, which is the third most important connectivity hub for Silicon Valley.
Equinix – San Jose, California – Great Oaks
Equinix operates four data centers in South San Jose, located at 5, 7, 9, and 11 Great Oaks Boulevard, which together comprise over 345,000 square feet of colocation space. As shown below, these Equinix data centers are known as SV1, SV5, SV10, and SV11:
Through its Great Oaks data center campus, Equinix offers connectivity to over 260 networks, cloud service providers (CSPs), digital content companies, and social media platforms – making it the densest interconnection hub in the Silicon Valley market.
Additionally, Equinix’s Great Oaks campus provides access to the two largest peering hubs or internet exchange points (IXPs) in the Silicon Valley market – NetIX and SFMIX (San Francisco Metropolitan Internet Exchange).
CoreSite – San Jose, California – SV1 Data Center
CoreSite’s San Jose data center, known as SV1, is located at 55 South Market Street and comprises 88,000 square feet of colocation space, within a 15-story office and telecommunications tower. In the early 1990s, a predecessor to Verizon established the building as an important communications hub by installing an internet exchange point (IXP) in the property known as MAE-West.
Through its SV1 data center, CoreSite offers connectivity to over 60 networks, including international carriers and connection to the Southern Cross trans-Pacific subsea cable. Additionally, CoreSite’s SV1 data center provides access to peering from AMS-IX Bay Area, part of the Amsterdam Internet Exchange.
Sunnyvale, Palo Alto, and Milpitas – Data Centers
Sunnyvale, Palo Alto, and Milpitas are all cities within the San Francisco Bay Area that form smaller parts of the Northern California data center market. In these cities, data center providers such as Equinix, CoreSite, Cyxtera, and Element Critical all have operational facilities. The most important of these data centers resides in Palo Alto, namely Equinix’s SV8:
Equinix – Palo Alto, California – SV8 Data Center
Equinix’s Palo Alto data center, known as SV8, is located at 529 Bryant Street and comprises 26,298 square feet of colocation space. This 3-story building is an internet exchange point (IXP) and colocation data center, formerly known as the Palo Alto Internet Exchange (PAIX).
Through its SV8 data center, Equinix facilitates the exchange of network traffic for over 100 networks, cloud service providers (CSPs), digital content companies, and social media platforms – making it the second most dense interconnection hub in the Silicon Valley market. In particular, Equinix’s SV8 is considered an important peering point between the United States and Asia.
San Francisco – Data Centers
San Francisco’s data center market includes about 5 carrier hotels and small facilities for local users that require low-latency colocation and proximity to servers. However, the high costs of real estate and electricity in San Francisco limits the city’s data center footprint. Colocation data center operators which serve San Francisco’s local demands include Digital Realty, Fortress Data Centers, and UnitedLayer.
Below is a map illustrating how Digital Realty’s 365 Main Street and 200 Paul Avenue data centers in San Francisco connect to the rest of Silicon Valley, including links to key markets like Santa Clara and San Jose:
Sacramento – Data Centers
Sacramento is a seismically stable market in Northern California, which does not face the same risk of earthquakes as other Silicon Valley markets given that it resides on a separate tectonic plate. At the same time, Sacramento is located less than 100 miles away from San Francisco and the broader Silicon Valley data center cluster – making Sacramento a “tethered” market via low-latency connections.
Additionally, Sacramento suits hyperscalers and enterprises seeking large-scale data center footprints, low-cost electric power (for California), more affordable land prices, and reduced operating costs.
In the city of Sacramento there are 5 data centers operated by providers including NTT Global Data Centers, Prime Data Centers, and QTS Data Centers. While in neighboring Rancho Cordova, a suburb of Sacramento, there are a further 5 data centers operated by companies including Mapletree Industrial Trust and EdgeConneX.
Why are There So Many Data Centers in Northern California?
In Northern California, there are so many data centers because of the region’s history as an internet exchange point (IXP), dense fiber connectivity, rich ecosystem of network & cloud providers, and consistent climate.
1) Internet Exchange Point (IXP)
MAE-West, a former internet exchange point (IXP) for the west coast of the United States, historically positioned Silicon Valley as an important connectivity hub. In the 1990s, MAE-West was one of the two principal exchanges in the United States, based upon traffic volume (the other being MAE-East in Northern Virginia).
In turn, a large concentration of data centers began forming in Northern California to process enormous amounts of data for large Internet and technology companies such as Google, IBM, Yahoo!, Microsoft, Electronic Arts, Sony, and Amazon.
Data centers, hyperscalers, and large enterprises in the San Francisco Bay Area rely on Silicon Valley’s high-capacity fiber networks to deliver diverse and low-latency data transmission. Northern California has deep and dense fiber throughout the city of San Francisco, further southeast in Santa Clara and San Jose, continuing into the East Bay, up into Oakland, and then beyond to Sacramento.
As shown below, a meaningful portion of these fiber-optic networks run from the large concentration of data centers in Santa Clara to Equinix’s Great Oaks campus in South San Jose.
Santa Clara and San Jose – Fiber Network Map
Fiber optic networks take time, expertise, and significant capital to build, meaning that Silicon Valley’s existing fiber connectivity is difficult to replicate.
Northern California has a sizable concentration of network service providers, colocation data centers, and cloud service providers (CSPs). The region acts as a key connectivity point for the west coast of the United States and the primary on-ramp for cloud service providers, including Amazon Web Services (AWS), Microsoft Azure, Alibaba Cloud, and Oracle Cloud.
Northern California has a consistent climate with few extremes. For example, the Silicon Valley region has the fewest number of cooling degree days (CDD) among all Tier-1 data center markets in the United States. Also, Northern California is less humid, on a relative basis, which helps reduce the risk of corrosion to servers, as a result of excessive condensation.
What are the Challenges to Northern California’s Data Center Market?
While Northern California’s data center market possesses strong demand drivers, the region also faces certain fundamental challenges to data center growth. Specifically, Silicon Valley has high real estate prices, power cost & procurement constraints, meaningful natural disaster risk, and a lack of incentives to promote data center growth:
- Real Estate: scarcity of developable land in Silicon Valley has caused prices to rise, as shown through two recent site sales: Harrison Street and Oppidan Investment paid nearly $6 million per acre for land in Santa Clara, while Amazon Web Services (AWS) paid over $7 million per acre for land in Santa Clara – both significant increases in relative pricing from prior years
- Power: electricity rates in Northern California are among the highest for Tier-1 data center markets in the United States, while the city of Santa Clara is power-constrained
- Natural Disasters: Northern California faces risks from drought, earthquakes, and wildfires – which could cause service interruptions or significant infrastructure and equipment damage. Because data centers require substantial quantities of water for cooling, Northern California’s susceptibility to droughts poses an even more acute risk
- Incentives: tax abatements promote data center expansion, however, the State of California offers no official data center tax incentives
Types of Data Centers in Silicon Valley
In Northern California (Silicon Valley), there are three main types of data centers: cloud, wholesale, and retail colocation.
Cloud Data Centers
Cloud service providers (CSPs) including Amazon Web Services (AWS), Microsoft Azure, Alibaba Cloud, and Oracle Cloud all have existing cloud regions in Northern California (Silicon Valley):
- Amazon Web Services (AWS): US West (Northern California) cloud region, known as us-west-1, has 3 availability zones and is located in the San Francisco Bay Area
- Microsoft Azure: West US cloud region, known as westus, has 1 availability zone and is located in San Francisco. Also, Microsoft’s US Sec West is an Azure Government cloud region, known as ussecwest, which has 1 availability zone and is located in San Francisco
READ MORE: Microsoft Azure’s Data Center Locations
- Alibaba Cloud: US West 1 (Silicon Valley) cloud region, known as us-west-1, has 2 availability zones and is located in San Francisco
- Oracle Cloud: US West (San Jose) cloud region, known as us-sanjose-1, has 1 availability zone and is located in San Jose
In total, over 40 multi-tenant data center providers serve the wholesale and retail colocation segments of Northern California. Generally, wholesale (or hyperscale) lease signings – meaning greater than 1 megawatt – account for ~90% of Northern California’s market absorption. While retail colocation contract signings – meaning less than 1 megawatt – contribute ~10% of Northern California’s market absorption.
Wholesale Data Centers
Wholesale data center operators lease either a full building or data hall to a single customer, providing access to basic cooling and power infrastructure. In Silicon Valley, wholesale data center operators such as Digital Realty, Vantage Data Centers, STACK Infrastructure, Prime Data Centers, NTT Global Data Centers, QTS Data Centers, and T5 Data Centers all have operational facilities.
Retail Colocation Facilities
Retail colocation providers offer turn-key data center services to multiple customers which have smaller individual power capacity requirements, with services delivered within the same data halls. In Silicon Valley, retail colocation providers like Equinix, CoreSite, Cyxtera, Cologix, DataBank, EdgeConneX, Element Critical, and H5 Data Centers all have operational facilities.