There’s a new concept brewing in the data center industry, specifically within urban environments. It’s called the Data Center Condo.
A majority of colocation operators are Real Estate Investment Trusts (REITs). One of the firm rules of investment in a REIT is that you are investing in fixed assets or buildings. To qualify for a REIT, you must own your property and not rent your properties. A 100-year land lease is, however, acceptable in a REIT scenario.
The obvious answer within the urban environment is data center condos where REITs can buy into the real estate. It may not be feasible or economical for a REIT to invest $400 million in a shell and core and only build out one or two floors. The perfect solution is to offer condos on a per-floor basis.
There are many advantages for locating your data center in an urban environment. Within Chicago, several companies are moving from the suburbs to the Chicago Business District (CBD) as the urban lifestyle helps retain talent. Companies such as Walgreens, United Airlines, and McDonald’s all have or are relocating to downtown Chicago. Many of the students coming out of college prefer the urban lifestyle. Lake Michigan, festivals, and restaurants all play an important part of the millennial’s workforce lifestyle. As the CBD grows, so does the need for processing close to company headquarters.
One of the hot topics recently is edge computing. The philosophy behind edge is to locate close to a central office telecom network for faster speeds. Therefore, to locate your data center close to the population (users) creates a better edge scenario. What better location than within the urban environment?
One developer — Cermak Square — has seen increased interest concerning the data center condo concept. The multi-story data center condo has been getting a lot of interest. It makes sense. There are 144 4–in. fiber conduits within the street. The building is pre-engineered for data center condo owners offering great floor-to-ceiling heights, 175 lbs/sq/ft structural load, buried fuel tanks, and other data center features.
“There’s been a resurgence in interest at Cermak Square,” states Sean Reynolds, regional director at JLL. “The condo concept makes a lot of sense for REIT colocation providers by reducing risk through purchasing one floor at a time.”
Most of the Chicago market data centers have moved to Elk Grove or the suburbs. And while rents are typically less ($145/kW) in those markets, the rents within the urban environment can still be competitive — and power is plentiful. The northwest suburbs lack power at the present (even though ComEd has plans to expand substations within the area), whereas in the city you can get power within an eight-month period.
If you are sold on the idea of building your data center within the CBD, you would still need to jump through hoops for city approval and neighbor community approvals. The Cermak Square has already gained city approval and local approval by the Prairie District Neighborhood. There is a lot of value in bypassing this process, which makes Cermak Square a speed-to-market play.
So let’s recap the benefits of the Urban Data Center Condo:
- Caters to REIT wholesale/colocation providers: Buying into a condo reduces both cost and the risk of overbuilding
- Reduction of latency: Being close to the major headquarters within the CBD has advantages, specifically when company IT departments manage data nearby (server huggers)
- Caters to edge computer processing: Local to both the CBD as well as 144 4-in. conduits of fiber
- Reduction of security cost through the condo association: Centralized security desk, truck docs, and other amenities
- Employee retention: Urban lifestyle is preferred among millennials and other technology operators
- Speed-to-market approach: The City of Chicago approval hurdles are already overcome