Many factors go into the selection of real estate for an Internet Data Center

Real Estate

At the core of all Internet data centers is real estate in which to place the network and systems equipment. Selection of location is critical for Internet Data Centers since it has a direct impact on the cost of the facility and an indirect impact on the cost of the Infrastructure, Operations and Network.

The top four criteria for site selection:

1.Proximity to Fiber – ideal sites will be within a couple miles from dark fiber and telephone company Points of Presences.

2.Space Size, configuration, expandability – sites must be large enough to support the intended operation, with floor loading sufficient for the equipment expected. Shared Internet Data Center operators must build to the worst case scenario, while the build decision folks may know in advance what equipment will be placed in the space. There are many other issues here having to do with fitness for purpose including weather proofing (earthquakes, hurricanes, floods, etc.).

3.Utility Power Availability – Dual grid feeds are desirable, but the requirement for 3,000 Amps at 480 volts per 50,000 are typically required for operations. in 2009 this may be the most important criteria.

4.Facilities Yard – Requirement for space at ground level or on the roof for fuel tank(s), generators, chillers, etc. Space required varies but requires at least 5200 square feet for the first 50,000 square feet of facility.

5.Local Government Support – These include tax abatements, permitting, right of way, power, fiber issues requiring government interactions including architectural review boards. In some cases, the number of parking spaces, off-ramp development, signage, etc. issues are uncovered only at a very late stage of real estate selection.

Jay Adelson (Equinix) pointed to Loudon County government support facilitating the selection of Ashburn Virginia. Another example is Terramark’s building of the Technology of the Americas Building. They constructed a six-floor building in a Federal Empowerment Zone in downtown Miami, and along with other government programs received several million dollars in support.

Locality to customer and support staff. Since these data centers will ultimately be used by customers and support engineers, it is important that local talent is available. Building a data center in the middle of nowhere would make it difficult to attract and retain folks to support the equipment and infrastructure in such a building.

For the financial models, we assumed a norm in real estate costs of $25/sq foot allocated in 10,000 sq foot chunks. See the scaling graph below. Those choosing the build option will need to choose the size of the data center in advance and/or purchase an option on adjacent space.  While the buy option typically requires a one-year contract, the build option typically requires ten or more years commitment. This is not a bad thing; the build decision requires investing a large amount of money to fit up the building with the required infrastructure. You do not want to get kicked out. 

A data center that is geographically close to multiple fiber providers and telephone companies allows for lower cost and more importantly lower time to obtain network access.

The popularity (and high rent) of 1 Wilshire in Los Angeles, 60 Hudson in New York City are prime examples. Interview with Art Chinn (colo.com): landlords in key cities in Europe are realizing the value of their real estate and adjusting prices accordingly.

As a result, these locations are in high demand and difficult to attain. Since the unit cost of commercial real estate typically doesn’t vary widely across amount leased, the per square foot real estate cost model looks roughly as follows.

Figure 4 - Fixed Cost of real estate allocated in 10K sq ft chunks scale roughly linearly

There are many criteria to be evaluated with respect to suitability of real estate. For example, all things considered equal, if there is sufficient lead time, most prefer Greenfield (brand new) buildings over existing buildings. Time to market may dictate retrofitting existing facilities to meet seismic standards, appropriate bracing for floor loading, drainage systems, etc. Demolition and retrofitting often can save valuable time to market.

Hidden charges and unexpected delays can impact deployment. For example, some telco hotels require interconnection of its tenant via risers to “meet me” rooms with unpredictable expenses and typically no Service Level Agreements on the speed at which connections are made.

When considering the buy decision it is important to assure there is sufficient space available for expansion and sufficient time remaining on the lease.

Among the core systems, Real Estate cost is the most variable and may have the largest overall impact on the cost of the facility.

It should be mentioned that the buy decision allows for great flexibility. For redundancy, at least two data centers are required for most mission critical operations. By leasing services, companies can achieve even greater redundancy by leasing across multiple shared facilities perhaps operated by different companies using different technologies. Further, content distribution technologies can be applied to move content to each continent to ultimately improve the end user experience. This flexibility is not inherent if you build.

Large Data Centers. According to Roy Earle, for shared Internet Data Centers there is a trend away from traditional telco hotels (typically 20,000 sq ft) toward large scale warehouse facilities (on the order of 300,000 sq ft) for collocated equipment. While this allows scaling of infrastructure, it also dramatically reduces the choice for sites. This ailment is not suffered by the data center build choice since smaller amounts of space is easier to come by. This effect is compounded by the fact that large warehouses suitable for data centers are typically outside of the major metropolitan areas and therefore likely far away from telco and fiber provider Points of Presence.

Sean Donelan made one other important point about the cost of choosing real estate badly:

“You can save a lot of money choosing the right site, but you can spend a lot of money on the site trying to upgrade it to the appropriate standards. Many of the most expensive problems to fix at the end of the build are due to the selection of Real Estate at the beginning of the build.”

According to Sean Donelan, “Real Estate prices in New York City, Tokyo and London are typically twice the cost of anywhere else.”