No longer just a niche

The increase in the number of data centers being developed, bought, and sold has exploded throughout the world, making this category of real estate one of the fastest growing relative to the existing stock of data centers. Indeed, data centers have come out of the shadows and stepped into the spotlight as a prominent asset type.

We learn in mathematics that a common denominator is a value that is a multiple of all of the denominators of a set of multiple fractions (or traits, characteristics, or beliefs) and is common to or shared by all constituents of the group. By no means is it my intention to offer readers a lesson in mathematics. However, I would argue that “data centers” is the one category of all real estate classes that functions as the common denominator to all other property types.

From sole proprietorships to Fortune 1000 companies, virtually all sizes of real estate property management companies are dependent on data centers to some degree. Whether they are accessing applications, processing financial transactions, storing reams of data, sending digital messages, or simply making use of search engines, a data center is likely supporting their needs. This discussion will begin with a history of data centers and how this special type of building snuck up on the real estate industry. Or did it?

History of data centers

The placing of large mainframe computers in buildings spacious enough to accommodate them began in the 1940s. The information technology and associated IT equipment contained in these rooms required a significant amount of power and cooling. This only increased with the advent of the UNIX multitasking, multiuser operating systems in the 1970s. The development of the microcomputer industry in the 1980s was marked by minimal oversight and lacked organization, so careful attention was not paid to operating requirements.

Linux, which is an open-source operating system, supported the use of the burgeoning personal computer revolution and its particular operating systems. This gained even more popularity in the 1990s, then we all became familiar with servers, the term commonly used to describe the type of equipment housed in today’s data centers.

As networking equipment gradually became less expensive and standards for network-structured cabling were developed, it enabled a significant number of servers to be placed into a dedicated room of a building coined the “data center.” The real explosion of data centers occurred during the dot-com bubble of 1997–2000, when companies across the board required faster internet connectivity and were racing against one another to establish their presence on the internet.

The now-ubiquitous data center, recognized as a distinct real estate asset, has been further characterized under various subcategories, some of which include cloud, edge, managed, enterprise, hyperscale, and co-location data centers. The determination as to which type of data center an organization will choose is based on the organization’s size, capacity requirements, and projected future growth.

In addition, security and access to information are essential to an organization when choosing a data center category. Like other classes of real estate, there are standard requirements of electricity, heating, ventilation & cooling (HVAC), security, janitorial services, and location. The importance of electricity and cooling is further emphasized by the tier rating system of data centers as defined by the Uptime Institute. They are rated by tiers numbered 1 through 4 based on the amount of electrical and HVAC redundancy, with Tier 4 having the most redundancy.

Managing the data center

Property management responsibilities for data centers include financial budgeting and asset management, electrical and HVAC maintenance, utilities or energy usage, environmental and regulatory requirements, life safety and security, and cleaning and janitorial. Unique to managing data centers is the importance of monitoring and reporting their utility usage and the amount of energy consumed on a timely basis to remain compliant with the demanding environmental and regulatory requirements placed on these properties. It is incumbent upon the property manager to pay close attention to these areas, as failure to do so will result in an inefficient and costly operation.

Because of the similarities across asset types, a property manager experienced in other property types can successfully transition to managing data centers. There are no credentialing or degree requirements to become a property or facility manager of data centers. However, there are certain designations specific to managing data centers, and having the foundation of a financial and mechanical background is extremely helpful.

Data center energy usage

There has been enormous growth in the adoption of devices using the internet, including mainframe servers, mobile phones, laptops, and desktop computers. Consequently, we have also seen an exponential rise in worldwide energy usage. Numerous research reports have cited that data centers in the U.S. alone use more than 90 billion kilowatt-hours of electricity a year, requiring roughly 34 giant (500 megawatt) coal-powered plants to produce this amount of electricity. Globally, data centers in 2020 used roughly 416 terawatts, which equates to about 3% of the total electricity consumed worldwide last year. That same figure measures nearly 40% more than the electricity consumed by the entire United Kingdom in the same period.

This amount of energy consumption is anticipated to double every four years, making the effective utilization of renewable energy sources that much more important for data centers. The most well-known sources of renewables include wind energy and solar power. Wind energy has become a prominent source of renewable energy, and its use will increase as the technology advances. Scientists have long understood that the sun is the ultimate source of all energy on Earth, so it was only a matter of time before a viable way to capture this source of energy would be developed.

These advancements in renewables have not resulted in the disappearance of coal as an energy source—it is still very much in use. According to the U.S. Environmental Protection Agency, in 2007, the information, communication, and technology (ICT) sector was estimated to be responsible for 2% of global carbon emissions, with data centers accounting for 14% of that ICT footprint. The property manager of a data center is in a position to reduce energy usage and drive up efficiency, thereby reducing energy costs and subsequently the data center’s carbon footprint.

Deciding where to locate the data center

Data centers at their core are still a real estate asset, so the traditional considerations of land availability, cost, accessibility, and so on all remain key factors in deciding where to locate a data center. Other considerations include the cost of electrical utilities, the availability of a skilled workforce, and reliable large-capacity switches.

Like other property types, such as retail and industrial properties, data centers tend to be clustered together in the same geographical areas. Some of the major U.S. data center markets include Northern Virginia, Dallas/Fort Worth, Phoenix, Northern California, and New York/New Jersey, and their numbers will continue to grow exponentially. 

The future of data centers 

Virtually all companies make use of new technology in one form or another, resulting in data centers becoming one of the operational backbones of all industries, not to mention the increased use of smart phones, social media, and numerous other devices. Data centers are supported and maintained by a workforce that includes IT infrastructure professionals, software developers, IT security engineers, and server and cabling technicians. However, they are also supported by a traditional workforce, which includes accountants, marketing professionals, brokers and leasing agents, engineers, and, of course, on-site facility managers.

This bodes well for the future of data centers and the next generation of real estate professionals. This class of real estate asset is challenged by an existing aging workforce, so to ensure the long-term viability of data centers, it will become incumbent upon the industry to attract a younger generation of professionals to the role of data center property manager.

The future and appeal of the data center to a younger generation will occur by the industry continuing efforts to support and encourage youth participation in STEM programs and International Data Center Day, as well as continuing to promote data centers as a distinct property and asset class.