Selecting a site for a data center is a long and complex process with hundreds if not thousands of considerations influencing the end decision. The industry has been changing quickly due to advances in technology, portfolio consolidations, new solution offerings, and more. This changing landscape makes long-term planning extremely difficult and is in direct opposition to industry demand. Users’ needs are often immediate and require ready-to-go space which puts considerable pressure on timelines to deliver supply.
A methodical and thoughtful approach is necessary when creating a strategy for a successful site selection, including the following steps:
Understanding and Defining the Business Needs and Wants
A logical first step is understanding the end goal of the process and how it fits in with the organization’s business plan. At Cushman & Wakefield, we have seen clients provide us with a massive list of site characteristics that would rule out nearly all of North America! It is important to determine the needs and wants to define where tradeoffs can be made to potentially open doors to more creative alternatives that meet the business needs.
Developing Scenario Options
After needs are determined, the market can be searched for aligning real estate options. There are difficulties associated with data center site selection and the open market; often the knowledge that a data center is a proposed use for a site will result in an immediate increase in price. The open market also draws competition from other types of commercial and residential uses that put upward pressure on pricing. These competitors often have shorter timeframes for due diligence and can move on higher quality opportunities. These issues are especially pronounced in tight real estate markets where serviced land and industrial sales are scarce. To reach an ideal solution, this may necessitate consideration of off-market sites despite the likelihood of above-market pricing. Surveying developers, utilities, provincial and municipal governments and other private land owners with proximity or access to good fiber and power can result in more favorable sites than anything available on the open market.
Identified options can be analyzed and weighed against one another to determine the best possible solution and the potential costs associated with each site. Through the due diligence process, the current state along with all identifiable risks should be determined for each potential option. Risks don’t necessarily eliminate a site, as actions can be taken to mitigate problems. For example, risks related to the proximity to a rail line can be mitigated by the construction of a blast wall. While this is not ideal and adds cost to the transaction, it can be a way to make an otherwise ideal site work.
Since a data center could be a 15-year investment (or more), a quality site analysis should also consider the future state of the site. To keep the example of proximity to a rail line going, a line may currently only be used for commercial traffic but could its use change to also include shipping or even hazardous material transportation? Was it used that way in the past? That shift would change the overall risk associated with the site. This all plays into determining the tradeoffs between location and cost.
In conclusion, when selecting a site for a data center, no stone should be left unturned. Mistakes or omissions in this process can result in losses or additional costs in the millions of dollars. Cushman & Wakefield’s Data Center Advisory Group has developed a customizable cash flow and scoring system to better compare a diverse set of options to provide the best recommendation possible.
Randy Borron is a Vice Chairman at Cushman & Wakefield with 30 years of experience in data center and telecom switch site acquisition and lease negotiations, and more than 35 years of experience in commercial real estate. His data center expertise covers site selection, lease negotiation, portfolio strategy, real estate strategic planning, and account management.