Data Centers: Not Just For The West Coast Anymore

Inside one of Switch and Data's facilities.
Inside one of Switch and Data's facilities. (Photo credit: Wikipedia)

Eric Hawthorn’s summary of  Grubb & Ellis’s research on the top 10 data center transactions of 2011 serves as another reminder of the massive changes transforming the national market for office and retail space.  The data center is the physical home of e-commerce, which grows its slice of the retail pie every year, displacing nationwide demand for brick and mortar.  It’s also the home of the cloud, or the virtual IT infrastructure that is displacing traditional office space needs almost wherever business is done.

Since nature — and the commercial RE broker — abhors a vacuum, the good news is demand is not disappearing outright.   Some displaced demand is simply “condensing” and moving into data centers.  Notably, no single region can claim the lead in this growing market.  The physical locations of these specialized commercial spaces are now just as likely to be found in the midwest or the south than on the west coast.  So physical location means less than development and connectivity opportunity.  That means the drivers of data center demand are on the whole likely to touch your local market.

Popular and growing uses for data centers:

  • To host web applications (Facebook, Twitter, Salesforce). Odds are you’re using these applications today.
  • To resell hosting capacity (GoDaddy, Linode, Network Solutions)  There is a 100% chance you’re using one of these companies, because our blog The Source is hosted at GoDaddy.
  • To host corporate IT applications (Microsoft Azure, nScaled)  The “cloud” offers vastly reduced capital expenditures and infrastrcture requirements to business, which impacts the market for commercial property space in two ways.  First, going forward, a business tenant is net less likely to lease physical back-office space to support her business IT requirements, opting instead for cloud hosting.   Second, the millennial generation, who never knew a world without telecommuting and wireless access to applications, is increasingly unwilling to work in front offices laid out around the PC/phone/cubicle concept.
  • To house backup (disaster recovery, business continuity)  Demand for data centers is driven even by those corporate tenants who retain the physical hosting of their primary IT applications.   Having offsite backup and  storage of corporate data and transactions is now a hard requirement.
  • To provide telecom interchange (“carrier hotels”, colocation facilities)  Providing metered power here, less strict layout policies and more flexibility, less superficial amenities, these traditional homes of telecom infrastructure are an expanding class of commercial property.

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