Power supplies key to data centre success
Copyright: David Lawson
Published in Property Week September 2008
In the first flush of the dotcom boom, a new breed of surveyor emerged with detailed knowledge of every manhole cover within the M25. This seemingly mundane information was worth millions to investors, as labels stamped in iron revealed the secret location of cables vital to carry massive amounts of data. Junctions of these information superhighways soared in value almost overnight. Scruffy backland sprouted offices and tin sheds turned into high-tech fortresses, crammed with rack upon rack of computers.
The dotcom crash proved merely a blip in soaring demand. Banks alone were taking more than 500,000 sq ft a year by 2007 as transactions soared and terrorism threats increased the need for secure backup facilities, according to David Willcocks, who was brought in to set up a team at Jones Lang LaSalle to handle this new property sector. As the banks’ needs were sated, telecom operators took the lead in demand as broadband proliferated but data managers are now the most voracious hunters, driven by soaring demand for space to process and store information.
. When manholes were being read, the average desktop PC had a 40 megabyte hard disk. Today, they are rated in gigabytes, or 1000 times the capacity. The sheer scale of data generated by even the most modest organisation has gone off the chart. Take, for example, the smallest property firm. A surveyor might take up to 500 digital pictures a week, each of which could be 5 megabytes, says Andrew Waller, a technical guru at Remit Consulting. ‘All that has to be stored somewhere.’
This is often beyond the capacity of a large firm’s back room servers, let alone the thousands of small ones. Outsourcing to remote data centres with the full panoply of managed computers is now commonplace. Demand for this kind of space is around 700,000sq ft in the South East alone compared with projected supply of 300,000 sq ft, according to JLL. And finding potential sites is no easy matter.
Reading manholes is irrelevant these days, as cable networks are now almost universal. Power is the key factor. Data centres can require as much electricity as a small town. Google is planning its next generation of ‘plexes’ near nuclear and hydro-electric stations, says Waller. Few make such huge demands but intimate knowledge of spare capacity in power networks has become as vital as manhole spotting. Opportunities for new centres are rare in popular areas like the Thames Valley and London Docklands, where existing operators are already struggling.
Some are replacing relatively new equipment with more efficient systems so they can squeeze in more computers, ameliorate soaring power costs and tackle the impending threat of energy performance certificates and carbon taxes. Power is not the only problem. Developers have often relied on converting warehouses in the past but that supply has dried up, says Willcocks. Building from scratch is restricted to sites away from housing because of the noise generated by 24-hour cooling equipment. Flood plains and areas around airports are also considered too risky.
There are strong incentives to work around these problems. As other property sectors stagnate, rents for data centres have soared. A managed suite can command up to £200/sq ft. But, as ever, potential investors find it difficult to accept non-conventional assets. ‘Traditional funders are not comfortable with the serviced model, despite long leases and good covenants,’ says Willcocks.
They might also choke at the sheer scale of many schemes. Fujitsu has just spent £45m on a new centre near London while Clifford Chance has two in London housing more than 1,000 servers. Most users don’t require – or can’t afford - such vast developments, however. Even if they could find a site, fitting out with cooling and security equipment can cost up to 10 times the build cost. They rely on managed centres such as Telehouse in London Docklands and Equinix in Slough.
A handful of what JLL calls ‘technical real estate companies’ have carved a lucrative niche in this market for fully fitted space. Andy Ruhan’s Sentrum added to its clutch of centres by spending £26m on the Massif distribution centre near Woking last year. There was plenty of opportunity for others to have seen the potential, as the 200,000 sq ft of space had stood empty for three years.
But the competition is sparse, with only a few names like Pioneer, Digital Realty, Infinity and Galileo on the prowl. One reason is that they have to go hunting outside the pack for funding. Willcocks says there are not enough hours in the day to handle requests for briefings about this esoteric asset sector but getting fund managers to put their hands in their pockets is still next to impossible.
Private equity, often from overseas, is the driving force behind these specialists. Pioneer’s Nigel Clarkson is funded from the Far East and US. Digital Realty’s name is a clue to the fact that it draws funds across the Atlantic. If institutional funders don’t get on board soon, they could regret missing one sector of the market that retains its lustre.