News
Why Data Centers Are Sexy
October 2, 2012
| Admit it: maybe you thought data centers were a little... boring? Nope, the data center is the James Bond of CRE—sexy, powerful, and existing in the shadowy world of intelligence gathering. We learned all that from our four all-star experts at Bisnow's Data Center Real Estate Summit Thursday morning at the Seattle Art Museum. |
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| Turns out that many of the top producers at Jones Lang LaSalle are those who work on data centers. That includes SVP Conan Lee(Conan heads the Northwest Data Center team; Daniel Craig insisted we run his picture with Conan), who gave the 120-plus crowd a rundown of why you want to locate your data center around here: plenty of clean, renewable power at low costs (for both land and energy, and, best of all, free rain); availability of product; developers willing to fund build-to-suits and aggressive lease packages; and a temperate climate for "outside air economization," a fancy way of saying "a way to cool those servers naturally." |
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| This is the real Conan, who managed to look awake even though he welcomed his second child, a son, early last week. (James Bond can stop terror plots, but can he change a diaper?) Thanks to hydroelectric power, the cost of a kilowatt hour of energy in Eastern Washington is a whopping two cents, among the cheapest in the world. The local gaming and biotech companies also see value in being close to their data centers, and as a result, vacancy rates in the CBD are extremely low. "There are a lot of new players," Conan says. "You're seeing some pretty big subleases hit the market, and we'll be seeing more." |
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| Sabey Corp prez John Sabey points out the cost of constructing new data centers is still very expensive. The entitlement process can be "challenging," he says, due in part to concerns about air quality issues. Surprisingly, permitting a generator in Quincy, Wash., has become more difficult than permitting one in Manhattan. Still, the data center business will only be kaput when the Internet is kaput—in other words, when cats become extinct. "Long term, the industry is going to be just fine," John says. |
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| Office tenants want Starbucks near their cubicles. Apartment tenants want Wi-Fi throughout the building. Data center tenants want right of first refusal and the right to expand, John says. But there are intangibles: "The clients can somewhat forecast their demands, but it's somewhat nebulous, too." In contracts, "the list of flexibility questions goes about nine pages." (Many data center attorneys also write the riders for Van Halen concerts.) |
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| The environmental impact of data centers and how to operate them efficiently remains a big topic in the industry. Callison's Leonard Ruff notes that there's been some "black magic" in determining exactly how much energy a data center uses. The metric, known as "power usage effectiveness" (PUE) would ideally be 1.0, meaning the same amount of energy used to power the servers would be used to cool them. At the moment, PUE is generally around 2.0, but some companies report PUE around 1.2 because some factors of the calculation are left out. PUE is a big driver of how much a data center costs, Leonard says. Reduce it and you'll save millions per year. |
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| Is there financing available for data centers? Tom O'Keefe, chairman of O'Keefe Development Corp, needs a one word answer: "No." While traditional financing is out, there are a lot of what Leonard calls "wannabe financiers," some of whom get scared off by the "inordinately expensive" costs of building a data center (any takers for $2,000/SF?). Tom says that when you get so many people with so much money looking to get into deals, "it's like the end of the pyramid scheme." Which is not a bad deal for him: still a relative newcomer to data centers, O'Keefe has been able to make entries into the market "at 50 cents on the dollar." |
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| We now have a generation of children who don't remember when the Internet didn't exist. What might our grandkids have that our own kids didn't experience? Conan's answer: "Robot servants." Leonard was so delighted by the idea that he confessed to losing his train of thought. (Can you blame him? Robot servants!) "Anybody have an iPhone 5 yet?" John asked the crowd. Seeing the show of raised hands, he remarked: "This is why data centers are not going away." |
