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John Sabey at Seattle Data Center Summit: “Everytime You Think the Market Runs Out of Land, Someone Finds Something New to Tear Down”

 
Nov 28, 2017
by Josh Anderson

SEATTLE, WA — As CEO of Sabey Corporation (Sabey), John Sabey oversees acquisition and development for the commercial real estate portfolio comprising primarily office and medical technology space, consisting of approximately 5.4 million square feet developed, owned and managed by Sabey. Sabe y has long developed specialty technology properties for the medical/life sciences, communications, government, and military sectors. As Big Data emerges as an essential component of medical research breakthroughs, the company’s leadership has been quick to realize their critical reliance on robust, highly reliable data centers. At CapRE’s Seattle and Pacific Northwest Data Center Summit, John participated in a up-close Q&A about his firm’s latest activity and his outlook on the data center space, moderated by CEO of CapRE Brian Klebash. Below is the third transcription of many to come covering this Q&A.

John Sabey, CEO — Sabey Corporation

Klebash: What have you been most surprised about in 2017?

Sabey: I don’t know that I would categorize it as a surprise, since you could kind of see it coming, but the growth of the hyperscale cloud firms and the willingness and ability of the third-party providers, which started a few years ago really continued in 2017. They just put down hundreds and hundreds of megawatts in all of the market 2017. I wouldn’t call it a surprise, like I said, since you could feel it coming. But it really kept rolling this year. And it looks like that is becoming the business model, especially in those competitive markets.

We talk about barriers to entry – they probably would love to own most of their data centers in those markets, but the reality is that there isn’t the available land in those marketplaces. So if they want to have a footprint in those marketplaces, they have to do business with a wholesale group such as themselves. And it also allows them to offload some of that risk as well as they grow.

But every time you think that that market has run out of land, someone finds a new something to tear down or consolidate and tear down. And Dallas has tons of land so you can do whatever you want in Dallas. It does surprise me that those market continue to eat a lot of the demand in the United States.

Klebash: How would you describe the competitive nature of the West coast? Have you looked at other market here for opportunities?

Sabey: I think an earlier speaker said it. For each of those markets, you’re kind of comparing apple and oranges. The Santa Clara market is a market unto itself. If you were going to say all of the good things about data centers, what would you want? Well a good regulatory environment, low sot of power, no geological risk, well you could check a box and Santa Clara has all of the worst thing you could possibly do. But other than that, that is where all of the hyperscale cloud guys want to be from a network perspective and proximity to a population base. So that market continues to be its own market, and people choose it for that reason.

Portland and Seattle do kind of compete a bit, for people looking for deals up and down the West coast. Seattle actually did pretty good in 2017 from a demand standpoint. I don’t know if it was surprising, but we have lots of cloud office space and bodies, but we don’t actually have much of the cloud infrastructure sitting in the Pacific Northwest. Microsoft’s over in Eastern Washington. It’d be nice to have a few more of those players up here. There are a couple of cloud players, cloud users in the Oregon area, but we could use some more Amazon, some more Oracle that will be able to do more of that business going into 2018 and 2019.

Quincy competes on a TCO model pretty much on the entire wet coat. So we go up against a little bit of Nevada. But when you really compare the numbers, there isn’t much of a comparison. So if you have a low latency or high compute application, that really is the best place to put it. And there aren’t a whole lot of third party colocation operators in central Oregon that could potentially bring some of those economic into play, so Quincy doesn’t really compete with Hillsboro either. They’re really different markets and users have different thing they are prioritizing that would allow them to pick those markets. And really the west coast and almost the entire United States is one big market, which has led to some of that price compression – people say I could go to AZ, I could go NV, Washington, Denver – and obviously that is going to give you a really competitive landscape and people will chase deals.

Be sure to check out the previous installments of this Q&A with John Sabey:

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