Right now, as you read this, you’re contributing to the demand for one of the most essential types of real estate in the world – data centers. Data centers are home to the technological infrastructure that allows any and all online activity to take place. They literally act as shelter for the internet. Data centers can be a building, a dedicated space within a building or a group of buildings used to house computer systems and associated components, such as telecommunications and storage systems. The key components of a data center include routers, switches, firewalls, storage systems, servers, and application delivery controllers.
Data centers are typically boxy and generic in appearance, but they are tremendously attractive real estate because they’re essential to all online activity. With the ever-increasing demand for connectivity, data centers are primed to set growth records this year, according to a new report from commercial real estate company CBRE.
What makes a good data center?
Just as when you’re looking for traditional real estate, location is one of the most important factors when selecting your data center. Businesses need proximity to their data centers for the optimal performance of their IT structure. A site that is physically close reduces data replication issues. Depending on the type of wiring you’re working with, the distance between a company and its data center will impact internet speed. Copper cables lose strength at around 330 feet, while fiber cables can extend up to 25 miles before there would be any noticeable impact on connection speed.
Given the importance of online connectivity, if a business’s data center is unreliable, the consequences can be drastic. Ninety-three percent of companies that lost their data center for ten days or more because of a disaster filed for bankruptcy within one year. Data centers need to ensure that they are secure against cyber-attacks and extreme weather events and have backup and room to grow.
Investment opportunities
Data centers have unique requirements that make owning one more expensive. It costs about $1000 per square foot to build your own data center, and that doesn’t include the added cost of having fiber optic cable installed to reach your data center, which will typically run over $10,000 per mile. There are also major energy costs associated with the electricity and the technology needed to cool the equipment. About 30% of a data center’s energy costs are eaten up just by the cooling equipment alone.
For those who aren’t in a position to make such a large buy-in, there is a much more wallet-friendly option for people who would like to invest in data centers. There have been a growing number of real estate investment trusts that focus exclusively on data centers, and they were the highest-performing REIT sector in 2020, with strong returns expected to continue for the foreseeable future. As long as people keep going online, the internet will keep needing a place to live, and data centers will meet that need.
