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Monday, Jul 4, 2022

Data Center Planned for Vernon

A new data center is planned for Vernon as the asset type sees increased demand countywide.
Most L.A. data centers are located in downtown, making the Vernon location unique.

Experts agree it is the first major center planned for the largely industrial city.
Data center developer and operator Prime Data Centers, based in San Francisco, is behind the center, which is slated to comprise 261,000 square feet when completed. The company is also creating a 49.5 megavolt amp substation that will service the new site.

Once completed, the data center will deliver up to 33 megawatts of power.
Power will be provided by the electric utility owned and operated by Vernon.
“As our first data center development in Southern California, this bolsters our strong presence across the rest of the state,” Nicholas Laag, chief executive and founder of Prime Data Centers, said in a statement. “Los Angeles is a thriving global connectivity market, and our new hyperscale Vernon data center will be right in the middle of it all.”

The facility is expected to be ready for move-in in early 2024.
Darren Eades, a managing director at Jones Lang LaSalle Inc., handled the acquisition by the developer. He said the location was unique for a few reasons.
“Traditionally, downtown L.A., Irvine and El Segundo have been the triangle where the majority of the data centers reside. One Wilshire (in downtown) because all the fiber runs into One Wilshire, but as the market increases and (there’s) competition from industrial users and the low vacancy rates, it’s been hard to find land parcels to build,” Eades said.
Others agree.

“It’s interesting to see the announcement of the new facility outside of downtown Los Angeles,” said Jennie Karnes, a vice president at CBRE Group Inc. “All of us in the space are looking at that and there’s always the follow the leader in the data entry space in our industry.”
Eades said Prime Data Centers chose the Vernon location because it was the “closest place to downtown we could find that had some power.” The city has its own power grid, which Eades said was easier to get the necessary access to than those in some other markets.

Secondary market

In 2021, data center mergers and acquisitions hit a new record of $47.1 billion, up from $34.5 billion in 2020, according to data from JLL.
Also last year, the global construction pipeline hit a new record, growing by 18.9% in the U.S.

In Southern California, there was an uptick in data center leasing in 2021. Last year the market had 7.7 megawatts of net absorption, up 38% over the previous year, according to data from CBRE.

The market’s vacancy decreased as well, the brokerage found.
“We see strong demand. Like a bunch of markets across the United States, Los Angeles has experienced a tightening in vacancy,” said Jacob Albers, a research manager at Cushman & Wakefield.

He added that the vacancy rate was close to 7% right now, a number that is “expected to continue to fall and that’s driven by a lot of demand.”
L.A. is not considered a primary market for data centers, despite their growing presence, but Eades said he is seeing more interest in L.A.

“More people are working from home and there are security issues and people need more content faster, more reliable, more secure, ” he said. “These big cloud providers that have traditionally gone to cheaper markets…need to go to big cities like L.A. to be closer to the customers.”

“We’re poised to grow,” Karnes agreed. “As the top-tier markets in the U.S. get lower and lower vacancies, customers are looking to these secondary and tertiary markets.”
The key building in the L.A. data center market, experts agree, is One Wilshire in downtown. The building has hundreds of fiber strands that run through other data centers, and is well connected.

Earlier this year, it was announced that Eades and other JLL agents arranged a $389 million refinancing of the property.
Goldman Sachs Group Inc. provided the 10-year, fixed-rate loan to San Francisco-based GI Partners.

Many companies want to be in the area, but there are some limitations to creating new data centers locally.
“The downtown Los Angeles core has significant barriers to entry,” Karnes said. “Not only is there very limited land available and conversion opportunities, but another big challenge is procuring power.”

“Utility rates are high and you will have to pass on a higher price to customers compared with other markets in the U.S.,” she added. Karnes has been working with data centers for roughly 20 years.
Beyond downtown, some data centers are located in El Segundo.
“There’s a lot of interest outside the core of L.A., where prices for power might be lower,” Albers said.

Scarcity of land and large amounts of power aren’t the only concerns that come into play in creating a data center. The facilities also need access to fiber, high ceilings and large holding weights. These requirements can make it difficult to convert existing properties into a data center.

The supply chain also creates some difficulties.
“It’s definitely impacting our space, and this is namely around the ability to procure electrical power and infrastructure,” Karnes said. “It’s very challenging to get right now due to delays. With the boom and significant growth of the data center industry, the line is long. Data center providers are competing with each other…and with the utility providers across the United States as well.”

Growing

Experts believe that there will be more interest in data centers in L.A. going forward, both from developers and tenants,
“We’ll continue to see vacancy tighten,” Albers said. “The demand from cloud providers is going to continue to increase. The deliveries are limited, there’s about 16 megawatts in the pipeline now … there’s going to be a lot of competition for new space by users.”
And that interest includes Vernon.

“Prime Data Centers is the pioneer, the first one to get a transaction done in the market, but there’s a ton circling around Vernon trying to find similar locations as well to fulfill demand,” Eades said.
Chris Rising’s downtown-based Rising Realty Partners, which owns and manages 340,000 square feet of data center space, is among the companies interested in adding more to its portfolio.

“We are always looking for acquisition opportunities,” Rising said in an email. “We particularly target connectivity and power-rich urban-core data centers located near telecommunication hubs as well as ‘edge’ data centers.”
Rising added that demand for bandwidth and data “has exploded over the last 20 years” and sees that trend continuing.

“Data centers provide stable cash flow, which is attractive to us as operators and investors alike,” Rising wrote.
Karnes said that despite new developments planned for L.A., she expects vacancies to drop.

“There is an accelerated demand, and we are seeing an uptick in the Los Angeles marketplace,” she said. “We’re going to continue to deliver more capacity, but leasing is going to keep up to new deliveries.”

Paola Mendez
Paola Mendez
Paola Mendez graduated from Los Angeles Valley College, then transferred to University of California, and now serves as a Receptionist and Office Assistant to the Los Angeles Business Journal. Paola wears many hats in different departments and is trilingual in English, Spanish and French.

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