Data Center Guide for Corporate Real Estate Executives
Why the Shift Toward Colocation?
- Lower Total Cost of Occupancy. Annual cost for an internal data center can be up to 10% higher than leasing colocation.
- Vacancy Rates Up Rental Rates Down . National vacancy rates have increased from 10% to 30% during the last
three years and rental rates have decreased by 20% in certain markets.
- Improved Energy Efficiencies. With data doubling every two years, internal data centers are typically devoting more
space and power to storage, which is expensive and inefficient.
- Opportunity to Invest in the Core Business. Capital is too valuable to over spend on building an internal data center
when providers can build for half the cost.
- Compliance Support. Stringent compliance and e-discovery requirements mean organizations must store and manage
more data over longer periods of time, which strains legacy data centers.
- High Reliability and Availability. Colocation providers offer a range of services and features that are designed
to minimize downtime and maintain high availability of applications, while offering major improvements in disaster
Key Components to Know About Data Center Real Estate
- Data Center pricing models are on a per kilowatt basis (not square foot).
- Locations that have utility rates less than $.07/kWhr provide significant savings.
- Power Usage Effectiveness (PUE) measures the efficiency of the data center.
- Internal data centers avg. PUE of 1.8-2.1, while Tier 3 data centers avg. 1.2-1.5.
- Tier rating measures redundancy (Tier 3 is becoming standard).
Why Should Corporate Real Estate Be Involved?
Contracts have transitioned from SLAs to leases
Ensures the transaction structure is aligned with business goals — e.g., Capex vs. Opex
Tax incentives are ignored; 17 states have customized incentives for data centers
Pursue a Sale-lease back: As the interest level from enterprise users to sell their legacy data center increases, cap rates approach 7.75%
Good money after bad; time to euthanize the legacy data center and embrace new technology
The pricing model is challenging to understand and companies oversubscribe on power
Migrations are expensive and concession packages that include installation allowances and beneficial occupancy are overlooked
Ambiguity within contract language often times shifts responsibility to the tenant for future capital expenditures — e.g., replacement
of a shared generator
Insufficient research on certain providers’ capital structure can be costly in terms of investment and risk.
Common Myths from IT about Owning and Building Internal Data Centers
- Less expensive
- More predictable cost structure
- More control
- Easier to plan for expansion
- Restrictions around outsourcing
When to Ask Questions About Your Data Center
- During an office relocation
If the data center was built prior to 2007
18 months before outsourcing contract expires
As compliance and e-discovery requirements become more complex
When an unexpected outage occurs
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