SAN DIEGO—Smart companies work with a specialist and engage in strategic planning for months, if not years, in advance to be able to evaluate all market alternatives for their data centers, Kristina Metzger, Southern California market leader for CBRE Data Center Solutions, tells GlobeSt.com. The firm recently found that Southern California is among the most expensive markets for constructing, commissioning and operating enterprise data centers due to its lack of tax incentives and its steep power and land costs.

A rising number of firms have growing requirements for storage, application and control. While in some parts of the country, companies across many industries, including financial services, healthcare, government and insurance, are opting to build and run their own data centers, in Southern California firms are more than ever better off leasing due to high operating costs.

GlobeSt.com spoke exclusively with Metzger about the best ways for companies to manage data centers in their real estate plans.

GlobeSt.com: Why does co-location make sense for data centers, particularly in the San Diego market?

Metzger:The cost to build and own a data center, especially in Southern California rarely makes financial sense, yet data center demand has never been higher. By leasing a co-location, end users are able to capitalize on the economies of scale of large purpose facilities at a fraction of the cost if they were to self-perform. In addition, they leverage third-party expertise and resources for best-in-class operations and security.

GlobeSt.com: Do more companies own or lease their data-center space, and why?

Metzger: The single largest trend we see is the move to outsourcing. More and more companies are choosing to outsource their data centers due to the following primary reasons:

1. It reduces costs. Leasing is less capital intensive and, as viewed in the recent CBRE report, owning just doesn't add up. Third-party data-center developers are able to utilize their economies of scale to develop large-scale, highly robust facilities at a fraction of the cost of a one-off user. They then pass those savings on in reduced rental amounts, making the case to build, own and operate very difficult to justify financially.

2. It increases flexibility. Leasing allows companies to scale up and down over time and evolve with new technologies at a rapid pace. Technical obsolescence is a huge concern. With technology evolving at such a rapid pace, no one wants to be stuck with a highly capital-intensive asset that in five years from now can no longer support the technology of the time.

3. It reduces risk. Smart enterprises realize they are not in the business of owning and operating data centers, their resources are better spent focusing on their core business and leaving their data centers in the hands of specialists. Third-party facilities are also able to spread the costs of increased 24/7 personal over many users, creating a more robust operational model available at a fraction of the cost. Many industries (finance, defense, etc.) have specific security requirements and certifications required for data centers which can be cumbersome for a one-off enterprise to maintain and confirm on a continual basis. Outsourcing to a third party whose core competency is the data-center space ensures they stay not only on top of existing requirements, but also on the forefront for future regulations as well.

GlobeSt.com: How do companies determine the best way to set up data centers vs. their other real estate?

Metzger: Smart companies work with a specialist and engage in strategic planning for months if not years in advance to be able to evaluate all market alternatives. Most enterprises have one to three data centers and execute a contract maybe every few years. The technology and the data-center industry are quickly evolving. What may have been standard three years ago is already obsolete. It's most important to work with someone who is engaged in the market on a daily basis to ensure your company makes informed decisions for the future.

Data centers are dramatically different than other asset types. Factors such as latency, electricity cost, sales tax, avoidance of natural and manmade risk and many other unique factors drive data-center decisions versus traditional metrics such as land, property or labor costs more common to other asset types. A data-center lease is also very unique. Items such as determination of an outage and service-level credits for downtime and power-usage efficiency ratio (PUE) are highly negotiated items.

GlobeSt.com: What else should our readers know about this topic?

Metzger: Data centers are not going anywhere; in fact demand for data-center space has never been higher. Every time you access something remotely from your phone on an app or hear keywords like "cloud computing," it simply means that rather than store that data on your device, it is stored elsewhere in a centralized server in a data center somewhere.

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How Smart Companies Manage Data Centers

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