I think one of the misconceptions about the data center business is that it’s a niche space. And the reality is it's become a very large industry and investment. And one of the things that we reference in talking to our clients is the fact that the five largest publicly traded data center companies are equal to the five largest office and industrial from a market cap perspective, which I think is surprising to many people. And I think [it’s] indicative of the growth of the industry over the last several years and what we think will continue to be a growth industry as we create more and more data, more and more interconnection, and [as] the need for security and distribution of that data becomes more and more critical.
So, what makes a facility mission critical? One of the things that is important when we visit with our clients is the level of security and/or redundancy, which varies by facility. Without getting too far into the weeds, there are certain aspects of our clients. The technology has to be very secure and it’s very regulated, and therefore security is paramount for them and in other cases, less so. Maybe distribution of some nonprivate content is more important to have low latency and be distributed to the edge for the client… We also consider easy access versus private, confidential healthcare or financial data.
Edge Locations in Data Center Site Selection
So, what is edge? There's a variety of terms and how different companies based on their industry might define that. So, edge to a content company would be the ability to distribute content to your phone or your home or your automobile as you're going places or where you might reside. Edge to an automotive company is the ability to do the transaction, if you will, it’s what allows my car to turn right when I wanted to turn right and to stop when I wanted to stop. So those are two big macro examples.
But obviously it's going to be critical to the continued driving of this industry and then ultimately tying it back to data centers. All of that is creating massive amounts of distribution points, contact points within carrier hotels and networks that all have to be built up and robust enough to handle that amount of data, which is why I still think there's a lot of lot of run room in this in this industry. Edge is very comparable to last mile in e-commerce logistics from the data center/telecom perspective… And much like the last mile in telecom, which has been very difficult to solve, I believe the edge world will be very difficult but very opportunistic for those that are in the process of figuring that out.
We're distributing data to the edge, and the importance of accessing information quickly and remotely is critical, and that creates a need for our clients, be that financial or entertainment, to be able to facilitate those needs. And really the only way to do that is through the edge. Distributing compute and transactions outside in a remote suburban area of any place is becoming key for almost all industries. And I think that will be from a data center perspective over the next couple of years, with 5G deployments and edge deployments, they all match together. It's going to be fascinating to see how that how they get solved. And candidly, the folks in our industry we've all defined the edge differently, which is not all bad. But it does spell out the opportunities as well. So, I think edge within a community is going to be key, and edge deployment for the end user. Doing that securely cost effectively and robustly is going to be a massive opportunity for the industry. We're distributing data to the edge, and the importance of accessing information quickly and remotely is critical, and that creates a need for our clients, be that financial or entertainment, to be able to facilitate those needs. Pat Lynch, Senior Managing Director, Data Center Solutions, CBRE
Changing User Behavior and Its Impact on Data Center Strategy
In some ways, user behavior remains similar, and in other ways it’s changing rapidly, and we really don't know what the future holds. So, the example I will give you is we still have hyper scale users, and large scale, consistent deployments. Think 100 megawatt, plus or minus, oftentimes hyper scale type deployments. They're still chasing places where they can secure land with very low power cost and significant incentives on the personal property and sales tax side. So that is driving a behavior of a subset of the group. And then if I go to the other extreme and I think back to your question on edge deployments and 5G… there is a data center requirement to support that in places like Manhattan or Los Angeles. It makes no sense to put those large deployments there when your power costs, you know, 15 cents per kilowatt there, but there is a requirement and the need for compute to be within those markets. So, I think those are the two extremes.
And then, of course, there's the ground-in-between money; think about places like Northern Virginia, where you've got a perfect storm of undersea cables, and competitive pricing from a regional perspective. It's a very cost-efficient place for people to store data, and the interconnection and access to cloud on-ramps a second compares to any place in the world. The way I describe it to our clients is it's not one of the above, its all of the above. And I think our user base is becoming more and more demanding of us to help them achieve a solution across the broad array of requirements, not just within North America, but across the globe.
Factors for a Successful Data Center Site
So, what makes a good location for a data center? It starts with going through a series of questions with our client about you know, what networks are important… Is it a regional facility? Is it a national facility? What are you trying to accomplish on them? What service are you trying to access?
And what we find today is that often drives a particular market or markets for us to search. With the industry being as strong as it has been, a lot of times it's availability of space. So, if a client's got 18 months, we have options. Many times, it's only six months. So, we're really looking a turnkey space. And the industry has done well enough that there's several markets where it's hard to find, depending on the capacity, that type of space. I think the other thing that's becoming more important to our clients is the financial strength of the provider that they're contracting with.
So, one of the things we’re discussing with our clients is making sure we understand the financial strength of the provider that they're going to contract with. While we often see flexible contract terms, it's very difficult to move, and more often than not, our clients create the relationship with the provider and they grow there if they're happy, and so that financial strength becomes very, very important.