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Data centers are still a bright spot in otherwise dismal commercial real estate forecasts. “Demand really is booming. The reality is businesses can’t exist anymore without data centers,” says Jill Eckhaus, CEO at AFCOM, an association that represents 4,500 data centers worldwide.

AFCOM is the sponsor of the Data Center World show, which runs March 8 to 12 at the Paris Hotel and Convention Center in Las Vegas. Eckhaus says there are plenty for this year’s participants to discuss, including virtualization, cloud computing, open source software and other new or non-traditional IT technologies; the benefits of green or energy efficient data centers; and creating effective disaster recovery plans.

Data centers, in simplest terms, are large computer rooms that channel all the data going in or out of a business. Although they’re IT assets, they’re also real estate–so the supply of data centers impacts the health of the commercial real estate market. Tier 1 Research, a New York City-based firm that tracks data center supply and demand, has an overall positive outlook for data center space, although there may be a minor dip in 2009 because of the current tight debt market and consequent slowing of new data center construction.

In a report last year, Data Center Knowledge, a website devoted to daily news and analysis about the data center industry, noted: “Data centers are filled with servers and storage, and the demand for the facilities is driven by trends in information technology. But they are also real estate, and the supply of data centers is governed by the ability to finance these capital-intensive building projects.”

Data Center Knowledge described the credit crunch as a factor in both 2008 and 2009. However, even challenges create opportunities. In this case, experts theorize, the credit crisis is helping established data center developers. The reason: more companies are outsourcing data center functions instead of building their own facilities. As William Marks, managing director of JMP Securities in San Francisco, notes, “There’s an ongoing demand for data centers. And there’s not much new supply.”

The beneficiaries of the demand for data centers include San Francisco-based Digital Realty Trust, a REIT that owns, acquires, redevelops, develops and manages technology-related real estate, primarily corporate data centers. It specializes in providing turnkey data centers for domestic and international tenants. Tenants include information technology and Internet enterprises, as well as those in manufacturing and financial services. The REIT’s 11-million-square-foot operating portfolio is 95% leased, demand is high and average new rents are three-times-higher than existing rents, the company reports.

In January, Scottsdale, AZ-based i/o Data Centers acquired a 530,000-square-foot high-power industrial facility on 31-acres in Phoenix. The facility was completed in mid-2006 for Le-Nature Inc., a Latrobe, PA-based firm that filed for bankruptcy around the time it was supposed to move into the new building.

But now i/o Data Centers plans to convert the property to a high-security data center, which will also serve as its new corporate headquarters. The new development, scheduled to open in June, will be in addition to the company’s current 125,000-square-foot data center in Scottsdale.

The buyers, i/o Data Centers, got a $56-million cash infusion in December from venture capital firm Sterling Partners of Chicago. “Even though the economy is slow, the demand for high quality data center power has continued to be strong. Our customers need to grow their IT operations and we help them do it,” says i/o Data Centers’ President Anthony Wanger.

Eckhaus agreed. “More and more, top executives are recognizing data centers as essential,” she says. “Because they affect both internal and external clients, they realize this is an area of the budget they just can’t cut too much.” When a corporate data center goes down, for instance, clients and prospective clients are can’t reach a firm’s website–a situation that creates a potentially serious loss of business.

When AFCOM surveyed 133 large-scale data center managers at the end of 2008, Eckhaus noted, 49.6% reported budget cuts averaging 15%. But more than half said their budgets are still intact, even though many other areas in their companies were facing budget cuts.

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