In the world of commercial real estate, only a handful of product types can truly be classified as mission critical – healthcare facilities and data centers are two that immediately come to mind. It’s not surprising that, because of their importance to our daily living, the sheer cost associated with developing either one of these product types is dramatically more expensive than an office or industrial building. Data centers have their own cost nuances: They need to be located within close proximity to major fiber optic trunk lines with dual feeds from the power grid and require heavy power and security infrastructure.
The adage holds true for data centers: Location! Location! Location! To decrease latency, data centers need to be located as close to the fiber optic trunk lines as possible. Perhaps, more important, these facilities are best suited with dual, independent feeds from the power grid. By virtue of these two qualities, data centers often are set within a sizable corporate concentration, putting a premium on land pricing.
What to expect: The Tier I markets will continue to see more construction and absorption but “edge cities” will also begin to thrive as providers seek to spread their megawatt (MW) footprint geographically.
The average-powered base building (defined here as foundation, four walls and roof along with a transformer and common areas for security, loading dock, restrooms, corridors, etc…) of a data center facility typically ranges from $125 per square foot to upwards of $200 per square foot. In general, this is somewhere between what it costs build industrial and office assets (depending on the design).
Without a doubt, the biggest cost in making a data center “rack ready” is the infrastructure. From the switchgear, UPS, redundant chillers and generators, an N+1 data center encompassing 3.5 MW of sellable IT capacity can be between $280 per square foot and $350 per square foot (assuming a 100,000-square-foot facility). These costs can, of course, be much higher depending on the power, redundancy and availability requirements.
What to expect: Although Tier IV, 2N data centers catch headlines, they are reserved for those requiring the utmost security (financial institutions, healthcare users). More common now is the N+1, Tier III data center that provides all the necessary infrastructure but at a lesser price tag.
The proliferation of data centers is only projected to increase as the world becomes more connected. There is no doubt that efficiencies and component cost reductions will decrease the required space per kilowatt. However, the change in the way we consume content (videos, streaming TV and gaming, etc…) will push the limits of required bandwidth per person. Expect this to increase the burden on providers and outpace the efficiencies of storage technology.
Kerry Hawkins is a senior director in the Boston office of HFF with more than 18 years of experience in commercial real estate. She specializes in office investment advisory throughout the greater Boston area.
Ms. Hawkins joined the firm in January 2018 from CBRE, where she was a first vice president. In this role, she represented numerous landlords and tenants in the sale and leasing of office properties, with a specific focus on the repositioning and marketing of underperforming assets. Ms. Hawkins is an active member of the Commercial Brokers Association (CBA); CREW Boston, where she serves on the Charity Golf Committee; and NAIOP, where she is chair of the 2018 Gala and a former bus tour chair. Through the years, she has been acknowledged by the industry with the Women of FIRE Award (Banker and Tradesman), the CREW Professional Service Award, the NAIOP National Developing Leader Award, Boston SF Woman of the Year and the Boston Business Journal’s 40 Under 40 Award.
Michael Restivo is an associate real estate analyst in the Boston office of HFF with more than four years of experience in commercial real estate. He is primarily responsible for performing financial and market analysis, preparing offering documents and coordinating the due diligence process for the investment sales group.
Mr. Restivo joined the firm in April 2015. Prior to joining HFF, he spent more than three years at Boston Properties as an Assistant Property Manager. Mr. Restivo earned his bachelor’s in economics from the College of the Holy Cross in Worcester, Massachusetts.