The Leader Magazine

MAR 2017

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20 MARCH 2017 F E A T U R E A R T I C L E A look at data centers and the corporate real estate portfolio by David Horowitz A lthough rarely seen or even acknowledged, during the last 10 years, data centers have become a prevalent part of today's society and a critical component to most companies' business and real estate portfolios. Data centers are the linchpin to powering modern business and the disruptive models that provide immediate access to almost anything, including sharing and viewing photos of family and friends, ordering on-demand automobile transportation or streaming entertainment content, and, best of all, connecting to people all over the world. The evolution in technology has allowed corporations to rethink how they work and undertake extensive innovation projects that will allow people to experience goods and services that just simply were not available a few years ago. These amazing features and benefits we experience daily need to be processed, stored and managed somewhere, somehow. That's where data center real estate comes into play. It's fair to say that most of the population has never been in a data center and truly has no concept of what the "cloud" really is; however, data centers have come to influence everything from corporate capital expenditures, to employee productivity, to end-user fulfillment. In fact, data centers have been one of the fastest growing sectors of real estate, dating back to the 2008-2009 recession, when they were one of only two real estate sectors to experience an increase in property valuations. Although the data center industry is still in its infancy, the rapid changes in the IT landscape are challenging corporations to develop the most effective strategy for storing and managing their IT infrastructure. Is it best to own your own data center? Utilize a third-party colocation provider? Put it in "the cloud"? Or some combination? From an investment perspective, all this change has been great for the sector. As of early November 2016, data center REITs outperformed the broader REIT sector and were up roughly 15 percent, on average, through the first 11 months of the year. In addition, data center REITs outperformed the S&P 500, NASDAQ 100 and DOW 30 by more than 10 percent. These results show the emergence of the data center as a viable real estate product class within the industrial segment. Growth in data centers is remarkable The data center environment for corporations has evolved from traditionally owning and building their own data center on premises to outsourcing these requirements to third-party providers. Determining which of the various outsourcing solutions (i.e., colocation, wholesale, cloud, etc.) is best for your company can be a challenging task, but outsourcing has proven to improve IT operations and be a more cost-effective approach. In certain situations, even some of the largest technology firms in the world like Microsoft, Google and Facebook are choosing to outsource their data center infrastructure requirements instead of building their own site. Leasing activity is at an all-time high and data center providers are challenged keeping up with the demand from cloud and enterprise companies. Considering the colocation/wholesale data center market isn't much more than 12 years old, there is already more than an astonishing 200 million square feet (18.6 million sq. m.) of third-party data center space in the U.S. Additionally, a study of data center energy use by the U.S. government found data centers now account for approximately 2 percent of the country's energy consumption. The continued rise in their demand creates the need for ever-increasing efficiency and sustainable designs.

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