Los Angeles Business Journal | By Daina Beth Solomon

Google owns more than a dozen data centers around the world – giant warehouses buzzing with servers that let internet users download Beyoncé videos, email puppy photos, or look for the nearest gas station on their smartphone.

Most of these centers sit in far-flung, sparsely populated places such as The Dalles, Ore., and Council Bluffs, Iowa. But as demand grows for rapid data access, Google is making strides to cover the gaps through leased space, with downtown Los Angeles one of its latest targets.The Mountain View tech giant last month signed a deal to house servers and consume up to 1 megawatt of power in space leased by Zayo Group Holdings Inc. at One Wilshire, according to industry sources.

Google’s desire for a local power boost suggests more major companies might follow as a burst of consumer demand outweighs downtown’s high costs compared with smaller cities, according to data center development professionals.

There are 2.3 million square feet of leasable data space in Los Angeles, charged up with 210 megawatts of power, according to real estate company Jones Lang LaSalle. An additional 20,000 square feet were under construction in Los Angeles County at the end of last year, set to provide 3 megawatts more. (The energy generated by 1 megawatt would be enough to power about 1,000 U.S. homes for a year.)

Nationwide, leasable data centers in major markets occupy at least 41.5 million square feet, consuming 3,560 megawatts, or enough to power 3.6 million homes.

“People are taking more space and more power to get the internet of things and the delivery of services and applications closer to the user,” said Marc Gittleman, senior vice president at downtown’s Rising Realty Partners, which owns a data center just west of downtown. “Whether it’s Google or Microsoft or Amazon Web Services, … we will be seeing more groups like that with higher density downtown.”

Bulking up

Denver-based Zayo zoomed into downtown last month, announcing it had signed a lease with One Wilshire owner GI Partners to take 24,215 square feet with access to 2 megawatts of power.

The deal is part of Zayo’s aim to expand its Southern California network of co-location sites – spaces that provide businesses the equipment, space, power, cooling systems, security, and networking abilities to store and share vast amounts of data.

“As we looked at California, there are some key interconnection facilities, and arguably the most important is One Wilshire,” said TJ Karklins, senior vice president of the company’s Zayo co-location business segment. “We tether our remote data centers into that facility and make them more capable to provide solutions at lower latency speeds.”

Businesses can lease space for their servers by the cabinet, which typically measure 25 to 27 square feet. Karklins said Zayo was marketing itself to media, cloud, and software companies and those providing data services in fields such as health care and manufacturing.

He wouldn’t confirm Google’s tenancy at One Wilshire.

Google representatives declined to comment.

Zayo said in a press release that strong customer demand in Los Angeles drove its expansion, including an agreement with a major web company as an anchor tenant.

One Wilshire, at Wilshire Boulevard and Grand Avenue, was built as a traditional office in 1966 and was updated for telecommunications uses beginning in the 1990s. San Francisco-based private equity firm GI bought it in 2013 for almost $438 million, a downtown record. On the heels of Zayo’s lease, GI announced it would add 9 megawatts of power to the building by summer 2018, bringing the building’s total supply to 30 megawatts.

Zayo’s space in the 30-story tower is a raw shell. Karklins said data center construction runs from $7 million to $10 million a megawatt, meaning Zayo’s space could cost up to $20 million to build out.

The company said it planned to begin construction this summer and open in the fall.

Michael Siteman, national accounts manager at internet infrastructure provider Internap, said that despite the expensive construction costs, Zayo should be poised to keep control over its space and fetch high rents from subtenants who are clamoring for an L.A. presence.

“It allows (Zayo) to make more profit,” Siteman said. “There are a lot of Google customers here. The closer they get to the edge where those customers are, the faster they’re able to deliver content and information.”

Costly business

Lease rates for co-location companies typically range from $125 to $195 a kilowatt, Siteman said, putting Zayo’s monthly rent for 2 megawatts at One Wilshire as much as $390,000. Although data centers calculate rates based on power, not square footage, the 24,000-square-foot lease would amount to roughly $16 a square foot. Asking rents for traditional office space in downtown are $3.55 a square foot, according to first-quarter data from JLL.

The building also provides power and cooling, which would add an additional $14 a square foot to Zayo’s costs, bringing its monthly rent to total roughly $717,000, or about $29 a square foot. That’s roughly $86 million over a 10-year term.

Zayo will take space in One Wilshire alongside co-location competitor CoreSite, a longtime building occupant that says it hosts more than 60 cloud and IT service providers within its 149,000 square feet. CoreSite also leases 425,000 square feet space at the Terminal Annex building at 900 N. Alameda St., where the company says it hosts more than 350 network, cloud, and IT providers.

Rising’s Gittleman said few office investors have the skills and resources to convert entire buildings to data centers, meaning downtown’s existing data centers will remain valuable. The company’s West Seven Center, purchased last year for $210 million, has 9 megawatts available of its 22-megawatt supply.

Gittleman said he expects rates to rise as supply tightens across downtown, given the growing importance of the market.

“You could have a Ferrari, but if you pinch the fuel line, you’re not going to get the performance out of it,” he said. “That’s the effect of being far away from a data center.”