$50M Data Center Lease Underscores Demand

Warner and Net2EZ co-founder Jamie Daquino tell GlobeSt.com that a number of factors are contributing to the demand for data center space, especially for co-location facilities like those where Net2EZ maintains data center operations on behalf of its customers. Warner, who specializes in data center space as a member of CBRE's Technology Practice Group, says that demand for data center space in general has burgeoned along with the growing information technology needs of all businesses, and that the demand for co-location facilities specifically is accelerating as more and more companies decide to outsource their data center operations to co-location specialists like Net2EZ. Requirements for co-location space in major US markets total approximately 700,000 square feet, which Warner describes as equivalent to about 10 million square feet of general purpose office space because the cost of data center space is so much higher.

Warner explains that the cost of building out space to house computer hardware in traditional office space has become prohibitive for most companies in today's economic environment. "Tenant improvement costs for computer infrastructure can run up to 10 times the cost of TIs for traditional office space," or upwards of $1,000 per square foot, Warner says. With little or no capital available to invest in new development of data center space at the same time as demand is growing rapidly, "It's really the opposite of what we're seeing in every other segment of commercial real estate right now," he says.

Building their own data centers can cost a business millions of dollars, which is one of the reasons that businesses are turning to co-location facilities, Warner says. In addition, Daquino points out, when businesses move their offices they are required to bring their data centers up to new standards that government regulators have promulgated since the days long ago when many of the in-house data centers were built. When companies move, he says, "They find that they can be compliant with those new rules and save money as well by outsourcing with us."

Net2EZ's lease at the Garland Center marks a return to the building for the company, which left after a debilitating power outage that occurred in 2005. Since then, the Garland Center has completed a $40 million infrastructure improvement project which has added significantly to the building's critical facility infrastructure, including utility power, back-up power and mechanical equipment. Pervez Delawalla, co-founder of Net2EZ, says that the $40 million in improvements has turned the Garland Center into "one of the premier critical facility buildings in Los Angeles."

Daquino adds that, with capital limited now, "No one is putting $40 million into a building" as the Garland Center did. In fact, a number of data center facilities have been put on hold, so co-location companies like Net2EZ are grabbing all of the vacant data center space that they can find, he says.