On July 20—the same day that the federal government announced its plans to close 40 percent of its data centers (a total of 800, including 195 by the end of the year and an additional 178 by the close of 2012)—panelists at a Bisnow Media “Data Center Boom” event agreed that new data center development is booming. While this may seem paradoxical, the rapid shift to virtualization technology and cloud computing—both of which embrace the use of more efficient, internet-based services rather than dedicated hardware and software—is spurring the government’s data center consolidation while at the same time driving demand for new, state-of-the-art data centers and storage facilities faster than anyone could have predicted just a few years ago. Changing user requirements from both the private and public sectors are altering how and where data centers are designed, built, and operated.

When deciding where to locate their data centers, most users focus on two primary factors: the cost and reliability of power (an essential element, since data centers require huge amounts of power to operate and cool equipment) and government incentives. David Richey, first vice president with Coldwell Banker Richard Ellis (CBRE), noted that incentives have become more important over the past 18 to 24 months, citing “what the state of North Carolina has done to attract Facebook, Apple, American Express” with abatements on sales and real property taxes. Panelists noted that several other states—including Virginia and Colorado—as well as local governments have been aggressively pursuing data center users with these types of incentives.

Many data center users also are concerned with factors traditionally considered by other commercial real estate users, including metropolitan statistical area (MSA) population size, office and retail inventory, and access to airports and other modes of transportation. “Ultimately,” commented Rob Faktorow, executive vice president with CBRE, “it comes down to where people are, where businesses are. The three largest data center markets in the country are New York/northern New Jersey, the D.C. metro area, and Silicon Valley.” As an example of the size and strength of the data center market, Faktorow cited northern Virginia, which has about 8 million square feet (743,200 sq m) of data center space today and an enviable vacancy rate of less than 5 percent. “As a result of that low vacancy, we’ve had a continuous supply of new construction over the last four or five years. On the supply side today, we have 640,000 square feet [59,456 sq m] of spec space under construction. And, over that same timeframe, almost every data center project has been leased prior to completion.”

Where will the equity and debt to build new data centers come from? Panelists agreed that past performance is essential in attracting both equity and debt financing. “There’s a lot of equity chasing investment in this space,” noted Latisys CEO Peter Stevenson, one of several panelists who said that plenty of money is available for data center operators with strong track records. “There’s hundreds of millions—if not billions—of dollars sitting around on the sidelines trying to figure out how to get in,” said Stevenson, adding that Latisys, which owns seven data centers across the United States, has raised $240 million since 2007 from both debt and equity providers. On the debt side, Stevenson cited “the best of the best lenders” wanting to be in the business”—lenders like Bank of America, Royal Bank of Canada, Toronto Dominion Securities, Wells Fargo—and even Caterpillar, which manufactures diesel engines that data centers use for backup power.

How have data center users’ needs changed in recent years? The short answer is “a lot.” Two of the most significant changes, according to Michael Manos, senior vice president of technologies for AOL, have been the needs for less physical space and more power. AOL, for example, has cut its data center footprint by about 30 percent in the past six months. Yet on a rack-by-rack basis, power consumption has increased enormously—from 2 to 4 kW up to 8, 12, and even 36 kW/rack. “People run out of power long before they run out of space,” Manos observed, suggesting that data center users are shifting their mind-sets from “I need 100,000 square feet of space” to “how much power can I deploy?”

With those big leaps in power use, sustainability concerns increasingly come into play. Manos urged everyone attempting to quantify how “green” a data center is to take into account the mechanical load of the building—how efficient the building is in its actual use of power, “which is the big elephant in the room when you’re talking about data centers.” Increasing security concerns also have been a big issue, as have the changing roles of networks and the increasing importance of connectivity between data centers with virtualization cloud computing. The bottom line is that data centers are extremely technical facilities, and that data center developers as well as owners and operators must be able to address prospective tenants’ technical needs and issues. “The people coming to make a decision on a data center aren’t just the real estate folks,” concluded Manos. “Realize that the IT and the technical side of the house will be throwing lots of questions at you as well, and make sure you’re prepared for those questions as well as the real estate ones.”