Digital Realty, a publicly traded data center real estate investment trust, is betting on surging demand for data storage property in Northern Virginia, one of the finalist regions in Amazon's location contest for a second headquarters that if selected by the online retailer would end up with even more demand for years to come.
San Francisco-based Digital Realty agreed to acquire 424 acres of undeveloped land in Loudoun County, Virginia, for $236.5 million, or about $558,000 per acre. The site is adjacent to Washington Dulles International Airport and located near bulk transmission lines, as well as a major fiber path.
The site is also located less than four miles from Digital Realty's existing data center campuses in Ashburn, Virginia. The land acquisition provides the foundation for Digital Realty's next phase of growth in Northern Virginia and will enable it to support years of customer expansion.
Online retailer Amazon says northern Virginia is one of 20 of its finalist regions for the home to proposed second headquarters, known as HQ2. The search for a site for the headquarters, which Seattle-based Amazon says will bring 50,000 jobs and $5 billion in capital spending, has drawn national attention. Digital Realty didn't mention Amazon in its announcement, but other companies like Amazon have long focused on the region as a data storage center.
"We are pleased to expand our footprint and strengthen our position in Northern Virginia," Digital Realty Chief Executive A. William Stein said in a prepared statement, calling the region "the most important data center market in the world."
Over the past six years, Digital Realty has invested $1.3 billion in new development and currently employs over 160 full-time employees in Northern Virginia.
The latest transaction is expected to be completed in the fourth quarter of 2018 and is subject to customary closing conditions.
Digital Realty will help finance the acquisition with a secondary offering of 8.5 million shares of common stock. Currently trading at about $121 per share, the offering could gross Digital Realty more than $1 billion.
It will also help fund Digital Realty's expansion into South America where it has agreed to acquire Ascenty, a leading data center provider in Brazil, from private equity firm Great Hill Partners in a transaction valued at $1.8 billion.
Other data center providers have also been expanding in Northern Virginia this year.
A fund advised by CBRE Global Investors acquired a three-building state-of-the-art data center portfolio in Sterling, Virginia. Constructed in 2017, the buildings total 446,811 square feet and are fully leased to a global cloud computing platform. The 36-acre site sold for $111.58 million.
"Northern Virginia is the largest and most active data center market in the world, with 70 percent of all internet activity passing through 'Data Center Alley' each day," Kim Hourihan, portfolio manager at CBRE Global Investors, said at the time of the purchase. "With the continued growth in cloud computing, coupled with expected increases in Defense and Homeland Security spending, we expect the demand for data center assets to continue to rise to accommodate ever-increasing data demands."
American wholesale colocation provider Aligned Energy also is entering the Northern Virginia market, with a 26-acre data center campus in Ashburn.
"Our new Ashburn data center campus addresses the needs of cloud providers and hyperscalers that demand a highly dynamic, scalable and future-proof data center solution," said Andrew Schaap, chief executive of Aligned Energy. "Data centers are the new engines of innovation for the 21st century."