This month, the Industrial Insider will explore the rise of data centers. As the property type continues to experience double-digit growth and we expect that this type of development will continue to expand well into the next decade.
What is a data center?
Generally speaking, a data center is a facility that centralizes an organization’s IT operations and equipment, as well as where it stores, manages and disseminates its data. Data centers house a network’s most critical systems, which are vital to the continuity of daily 24/7 business operations.
Data centers can be physical or virtual infrastructures that are used to house computers, servers, networking systems and components for the company’s information technology requirements. This typically involves storing, processing and serving large amounts of mission-critical data to clients in the client/server architecture.
A data center often requires extensive redundant or backup power supply systems, cooling and humidity control systems, redundant networking connections and policy-based security systems for running an enterprise’s core applications.
Data center management involves ensuring the reliability of both the connections to the data center, as well as the mission-critical information contained within the data center’s storage. This management also entails efficiently placing application workloads on the most cost-effective computer resources available.
Why do we need data centers?
Despite the fact that the technology hardware is constantly getting smaller, faster and more powerful, the demand for processing power, storage space and information is growing exponentially and threatening to exceed many companies’ ability to deliver.
Any entity that generates or uses data has a data center requirement on some level, including government agencies, educational bodies, telecommunications companies, financial institutions and retailers. The greatest need for data security and storage may be from suppliers of online information and social networking services such as Google and Facebook. The inability to deliver fast and reliable access to data can result in the inability to provide vital services, which causes the loss of customer satisfaction and revenues.
All of this data needs to be stored somewhere. And, as more and more information is also moving into the cloud, access to this data is through the host servers of cloud providers rather than running or storing them on our own home or work computers. Many companies are also moving their professional applications to cloud services to cut back on the cost of running their own centralized computing networks and servers.
The cloud doesn’t mean that the applications and data are not housed on computing hardware. It means that someone else is maintaining the hardware and software in remote locations where the clients and customers can access them via the internet. These locations are considered data centers.
How do data centers work?
Because of their high concentrations of servers, often stacked in racks that are placed in rows, data centers are often called “server farms.” They provide important services, such as data storage, backup, recovery, data management and networking.
The main difference between a cloud and a data center is that a cloud is an off-premise form of computing that stores data on the internet, whereas a data center refers to on-premise hardware that stores data within an organization’s local network.
The Telecommunication Industry Association developed a data center “tier classification” standard in 2005 called the TIA-942 project, which identified four categories of data centers, rated by metrics like redundancy and level of fault tolerance.
These include Tier 1: basic site infrastructure with a single distribution path that has no built-in redundancy; Tier 2: redundant site infrastructure with a single distribution path that includes redundant components; Tier 3: concurrently maintainable site infrastructure that has multiple paths, only one of which is active at a time and Tier 4: fault-tolerant site infrastructure that has multiple active distribution paths for lots of redundancy.
In theory, sites that fall into the Tier 1 and 2 categories have to shut down for maintenance occasionally, while Tier 3 and 4 sites should be able to stay up during maintenance and other interruptions. The higher number translates to both a higher level of reliability (meaning less potential downtime) and a higher cost.
The standard also spells out recommendations for cabling, facilities infrastructure (like environmental control and power) and other design concerns. These standards are targeted to the telecommunications industry but can also be applied to other data centers. It is one of the few ways to rate and compare data centers by overall design and functionality.
Not all data centers follow these standards. As a matter of fact, the data centers of today are such a new phenomenon that there aren’t specific building codes for them in most areas. Their layouts, equipment and other requirements are continuously evolving, but there are some common elements you will find in a lot of data centers.
For example, a Tier 3 data center is a location with redundant and dual-powered servers, storage, network links and other IT components. It is one of the most commonly used data center tiers, where IT components have multiple, active and independent sources of power and cooling resources. Also, a Tier 3 data center combines and exceeds features and capabilities of Tier 1 and Tier 2 facilities.
Some experts estimate that multi-tenant revenue growth will be 12 to 14 percent each year for the next two to five years. A majority of the growth will come from retrofitting existing properties instead of ground-up development. Retrofits are usually more cost-effective, as they usually have access to utilities already.
Where are data centers located?
There are currently more than 600 data center operators in North America, and there have been many recent mergers and acquisitions, which is expected to continue going forward.
Data centers have the ability to expand to any location as long as there is access to utilities and close proximity to transportation. Northern Virginia remains the top market nationally with Texas, Chicago and Silicon Valley close behind. Amazon, through its Amazon Web Services subsidiary, is among the top companies leasing space.
Silicon Valley is among the largest markets in the west because of its proximity to global tech industries and the availability of engineers to manage servers. Northern Virginia is an ideal location because of its access to fiber and lack of natural disasters. The cost of power is also cheaper in this market.
Coastal cities and those near water have become more popular because water cooling can create better efficiencies. With an increase in hurricane activity in several coastal regions, data center operators have been forced to evaluate additional risks to keep centers in these areas.
One of the barriers to entry is the less-than-robust availability of mortgages for data centers compared to office, retail and industrial projects. In addition, the rapid changes in technology can make the data center obsolete in a much shorter time-frame than most business operations.
In the metro Chicago area, the Brennan Investment Group is embarking on a new project named the Elk Grove Technology Park. According to Brad O’Halloran, a managing principal with Brennan, the EGTP is ideally suited for the needs of data center operators.
“The park’s 85 acres have all of the key needs of today’s state-of-the-art data center operator. First, immediate power is available through Commonwealth Edison directly to the site. Secondly, the site is located at a convergence of national fiber optic cables. Additionally, there is plenty of fresh water available for cooling,” said O’Halloran. “And last, being a former farm site makes it truly a clean greenfield development which mitigates risk for any potential operator. In addition, the quality image of the park, with its high-tech design, appeals to the needs of the operators and their desire to attract national and international clients.”
It appears that the rapid growth in data consumption would almost guarantee opportunities for commercial real estate professionals. The typical focus for data centers is in top-tier locations, but second- and third-tier markets are also becoming viable options for the growth of data center development into the future.