By Rebekah Morris for the Arizona Builder’s Exchange
The Basics of Data Centers:
- Three types of data centers are: enterprise, wholesale, and co-location.
- Enterprise – Huge companies like Facebook, Google, Amazon all develop their own data centers.
- Colocation – Data centers developed by a third party that leases out space to tenants to house their IT equipment. Colocation operators are also servicing the IT equipment and performing maintenance.
- Wholesale – Somewhere between enterprise and colocation. A third-party builds a data center, but the tenants are responsible for installing equipment and maintaining their respective spaces.
- Latency: speed of the connection, or measure of time delay in a system. The lower the latency, the faster the speed.
- Redundancy: Duplication of critical components, most commonly, electricity.
- How Data Centers are Measured: Capacity in megawatts.
- Life expectancy of a Data Center: 10-20 years, with IT equipment being refreshed or replaced as frequently as 7-10 years, or even every 2-5 years to replace servers with faster and higher capacity models.
- Cost to build a data center: quoted at $1,100/SF – $1,500/SF, data centers are easily the most expensive type of building to construct.
Recently AFCOM hosted their quarterly meeting at Realty One’s colocation data center in the Price Corridor, very close to the Cyrus One data center, which recently broke ground. The keynote speakers were Mark Bauer, Managing Director, and Carter Robinson, Associate, both of Jones Lang La Salle. In addition to the incredibly intimidating escorted guide through a maze of ‘matrix-like’ corridors, the stop in an empty space ready for tenants to lease out was eye opening to say the least.
The presentation went into great detail about the factors that play into how owners decide on a site for a data center, as well as the trends in design & construction. To compile this article, AZBEX has followed up with many additional players to provide an overview of this exciting and very challenging market sector.
Site Selection Criteria
Bauer and Robinson went into how companies determine where to locate data centers. The two most important factors to his clients in choosing a location to build in consistently come up as: Sales Tax Policy, and the Price of Power. The sales tax policy he referred to is a competitiveness issue. Other states have incentivized data centers by abating sales tax of the construction activity, sales tax on the IT equipment inside the building, as well as other taxes like property tax and personal property tax. This has made Arizona less attractive.
On a follow-up call with Bauer and Robinson, they went into further detail about the sales tax issue. Bauer stated that technology and software are often a company’s third largest expense behind capital assets and payroll. He explained that software licenses are assessed sales tax, and when purchasing tens of thousands of licenses at a time, the sales tax on those items is monumental, far exceeding the cost of the initial capital investment. The tax is assessed where the server is located, hence the site selection being so crucial.
How AZ Stacks Up
Arizona has been designated as a top pick for locating data centers as shown on the map above. As recent as last week, the radio identified Phoenix as a ‘Top 10’ location for data centers. This agrees with Bauer’s comments. He went on to identify Phoenix’s strengths in areas such as multiple power companies, inexpensive energy costs, lack of major natural disasters, and a strong fiber backbone already in place. CBRE’s Luke Denmon explained the network of fiber as ‘dark fiber’, a situation where the major carriers were able to buy into a joint trench and have placed fiber cables underneath roads in the Valley at some point in the past, so the backbone exists. To build a data center, a carrier doesn’t have to start from scratch to extend fiber to a chosen site.
Biggest Factors in Data Center Site Selection
- Cost & Availability of Dedicated Power
- Tax Environment & Available Incentives
- Reliability of Water
These three factors weigh heavily in the entire life-cycle cost of the data center, which is the ultimate selection criteria.
Attracting Data Centers
Luke Denmon and Carter Robinson both described the efforts of local agencies to attract data centers. They mentioned groups like GPEC, AZ Technology Council, the Arizona Commerce Authority as big proponents. Cities like Chandler and Tempe have done much to attract centers as well. They have realized that data centers are big job creators: it takes a lot of high-wage IT professionals to run a very large facility.
Denmon went further by identifying a co-location data center as an employment multiplier, saying that where a company’s IT infrastructure is located is more likely to attract the rest of the firm’s operations to a location nearby.
The groups mentioned above and others are pressing the state legislature to abate taxes that would help attract more data centers. Denmon described how in the last legislative session, Representative Jeff Dial introduced HB 2787, which was aimed at this specifically. The bill didn’t pass committee review, but there are hopes to try again with a similar bill next session.
Trends in Design & Construction
The top trends in data center design & construction include increased modularity and containerization, increased energy efficiency, and enterprise consolidation. Ranges in construction costs from the CRE brokers varied a bit more widely than the General Contractors, but the general consensus is $6-$7M per megawatt on the low end, up to $15-$17M per megawatt on the upper end. Costs were most dependent on latency and redundancy requirements of the operator.
Modular & Container Construction of Data Centers
Modularization and containerization are both driven by the desire for a faster deployment. Modular construction, where parts are pre-fabricated off-site and brought to their place of final installation with several components already assembled and tested also fits into owners desire for a phased approach. Phasing helps meet developers cash-flow needs by delivering space according to demand. Both JLL and CBRE believe demand exists to fill space as it becomes available.
The trend of containerizing data centers refers to a box or similar ‘container’ like a shipping container, which houses all the data center equipment, HVAC, etc. completely installed, tested, and ready to go. The box is then delivered to the site, ‘plugged in’ and operational in a very short time frame. According to Ron Vokoun, Director of Mission Critical for Gray Construction, a container solution can be deployed as fast as 90-120 days. Applications for this solution include a seasonal demand on the IT needs of a company.
Energy Efficient Design in Data Centers
The measure owners are looking for in energy usage in data center construction is Power Utilization Effectiveness or PUE. The measure is derived by the following equation:
Keyvan Ghahreman, of Holder Construction explained one way his firm is driving PUE closer to one is by adding hot or cold aisle containment, physically separating the cold air entering the equipment from the hot air leaving the equipment. He sees this as a common retrofit if existing facilities.
Another prime way to decrease the PUE closer to 1 is by increasing the energy efficiency of the HVAC systems. That is sometimes done by implementing ‘Adiabatic cooling’ or ‘evap cooling’. Mo Ardebili, President of Energy Systems Design, gave a wonderful description of the term Adiabatic cooling as ‘warm, dry air passes through a wet medium, the evaporation of the water into the air causes the temperature of the airstream to go down. No mechanical cooling is required, only the fan power and the cost of the evaporated water. And the drier the air, the better the system works.’
Acceptable operating temperatures of IT equipment was a hot topic during the Q&A portion of the AFCOM presentation; attendees questioned whether the manufacturer’s producing equipment with a higher allowable operating temperature would aid in Phoenix’s level of suitability. Bauer’s answer was a ‘not really’. While the trend would allow more free-air time in assessing sites, it would also help all other locations under consideration at the same time. It wouldn’t give Phoenix any added advantage over other places.
Future Demand for Data Centers in AZ
Through the many interviews I had for this article, the prevailing sentiment was overwhelming optimism for the data center market sector. While no one is parting with any announcements of future projects, everyone appears to be busy and pursuing more opportunities. Luke Denmon, CBRE, said it well when he stated things are ‘busy and only going to get better’, and ‘2013 should be a good year for product’. When I pressed him on this sentence, he agreed that to deliver product in 2013, projects are moving through the planning/development/construction phases now.
Overall demand for data storage continues to increase, and Mark Bauer mentioned that IT needs change so rapidly, it’s impossible to plan out past 3 – 5 – 7 years. Keyvan Ghahreman of Holder Construction stated that on a national perspective they’re ramping up for incredibly busy third and fourth quarters, with several data centers around the country kicking off in the September-October timeframe. Ron Vokoun of Gray Construction mentioned that with more firms finding additional ways to use ‘Big Data’, demand for data centers will continue to rise.