2011 Data Center Summary

Issues Most Impacting Data Centers During 2011

  • Reid McConnell Tax Act increased the number of companies spending their own capital to build out space as an alternative to turn-key data center solutions.
  • Due to increased competition,wholesale pricing is flat on a national basis. Downward pressure on pricing is more likely operator specific than market specific.
  • The increased number of developers / operators has provided additional models. Increased flexibility by developers provides tenants greater opportunities to build their desired density. Furthermore,overly dense models (200 watts/sf) will take longer to lease up in certain markets (e.g.,  Chicago,New York).
  • Wholesale speculative construction costs are down . . . →Read More:2011 Data Center Summary

Turkey,Data Centers and Dallas

National Highlights

  • Demand continues to outpace supply, primarily by users looking for 700 KW – 1.5 MW (5,000 – 10,000 square feet).
  • In the non-wholesale market (under 500 KW);colocation deals are reaching $350/KW all in.


  • Overall pricing has remained consistent since our last Dallas newsletter, as rental rates range between $125-170/KW NNN for wholesale PODs.
  • Stream Data Centers is under construction on Richardson II project and will deliver 20,000 square feet of commissioned raised floor in May 2012.  There will initially be 2.2 MW of critical load,expandable to 30,000 square feet of raised floor and 6.6 MW of critical load.
  • Texas . . . →Read More:Turkey,Data Centers and Dallas

Chicago – Tightest Data Center Market in the Country

National Highlights

  • As indicated at the end of 2010,the Reid-McConnell Tax Act has driven data center activity around the country with many tenants focused on the powered shell properties and incurring the capital expenses rather than interested in turn-key real estate solutions.
  • Chevron,Disney and Walgreens are a few of the companies that took advantage of the legislation during the first-half of 2011 for their new projects.
  • Wholesale lease transaction activity has been strongest in Santa Clara,Calif. and in suburban Chicago. The tenant composition has been less enterprise users and more Web 2.0 companies including,Zynga,Groupon and Server Central amongst others.
  • One of the biggest questions . . . →Read More:Chicago – Tightest Data Center Market in the Country

Data Center Activity Heats Up In Manhattan

Spotlight New York:

  • Since Google’s acquisition of 111 Eighth Ave.,all available space in the building has been taken off the market. The most recent data center transaction in the building was Digital Realty Trust’s sublease of 53,000 square-feet to Telx shortly before the building’s sale.
  • Sabey and local developer Young Woo are under contract to purchase 375 Pearl St.,a 1-million-square-foot former Verizon switching building,for an estimated $100 per square-foot from M&T Bank. The building is well-suited for data center use,with very heavy floor loads,high ceiling heights,limited windows,and abundant shaft space.  Verizon will maintain a three-floor condo interest in the building.
  • . . . →Read More:Data Center Activity Heats Up In Manhattan

Taxes and Incentives

In response to budgetary pressures,states are trying to drive additional revenue either by using incentives to attract more data center operations or by collecting more revenue from those they have.

Hot Issues:Sales Tax Collection

  • States are becoming more aggressive in defining the conditions under which online retailers must collect sales tax on internet purchases. Texas and Amazon are currently doing battle over this issue.
  • In response,some larger online retailers are reconsidering their affiliate structures in states like Illinois in order to avoid collection requirements.

Sales Tax Expemption

  • Sales tax exemptions on computer equipment and/or construction costs can be found in many states and represent . . . →Read More:Taxes and Incentives

Chicago Update

National Highlights

  • Data center construction activity increased by $8 billion from 2009 to 2010  according to International Data Corporation.
  • The streamlined construction processes and economies of scale enjoyed by large developers have resulted in a significant decrease in construction costs on newer projects.  Combined with steady rental rates,this trend has resulted in higher return for developers.
  • While existing wholesale tenants expanding their footprints have dominated leasing activity,  there is significant activity from large enterprise users looking for new requirements.

Spotlight:Metro Chicago

  • Downtown Chicago is one of the tightest wholesale markets in the country,whereas the suburban market is much softer due to new . . . →Read More:Chicago Update

Northern Virginia Update

National Highlights

  • Improving economic conditions,favorable views for recovery and the return of capital availability are driving activity in the data center sector.
  • For both large and small enterprise data center users,demand trends continue to favor operating expense models that call for outsourcing some infrastructure and service components.
  • Supply in the pipeline primarily consists of wholesale space. An increasing number of smaller wholesale suites are becoming available,generating higher levels of commerce and blurring lines differentiating wholesale and retail models with respect to infrastructure.

Spotlight:Northern Virginia

  • Virginia has seen increasing design-build interest from the user community,with a number of operators rumored to . . . →Read More:Northern Virginia Update

Year End Report

  • The Reid-McConnell Tax Relief Act of 2010 should have a significant impact on demand for data center space during 2011. The bill calls for 100-percent bonus depreciation on deduction allowances for investments in new business equipment placed in service between Sept. 8,2010,and Dec. 31,2011.


  • There is approximately 5 MW of wholesale data center demand and approximately 19 MW of existing supply currently,with an additional 8 MW proposed for delivery by the end of 2011.  There is no new capacity of any significance currently under construction. The major wholesale leases signed this year include two undisclosed deals of 2 MW and 1 MW.


Data Center Investment


  • Since 2008,the largest data center leases that have been signed  are technology-related companies such as Google,Yahoo,Microsoft,Apple and Facebook.
  • Facebook has absorbed more wholesale data center space than any other company during the last two years. However,colocation and cloud companies are not far behind.
  • During the last two years,companies have shifted their focus from building their own data centers to leasing from third-party operators.
  • Some of the reasoning behind this is to reallocate capital to core operations,as well as the availability of wholesale space and competency of the operators.
  • According to Gartner,50 percent of data centers that were built . . . →Read More:Data Center Investment

Southeast Region Update

National Highlights

  • Google is reportedly purchasing 111 Eighth Ave. in New York for a 5-percent capitalization rate.
  • Allied Fiber is nearing completion of  its 1,200 mile + dark fiber platform between New York,Chicago and Ashburn. Engineering work on Phase 2 (Ashburn -Knoxville -Chattanooga -Atlanta -Jacksonville -Miami) will commence in early 2011. Allied is completing the designs of several co-builds from both carrier and non-carrier network operators.


  • Nearly 500,000 square feet of collocation space will become available through new development and lease expirations.  Atlanta has a total of more than 2.5 MSF of internet data center space.
  • Quality Technology . . . →Read More:Southeast Region Update