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Thursday, January 9, 2014

Data Center Leasing Up More Than 25% from 2012 to 2013

By Jim Kerrigan

Over 1 million square feet of Multi Tenant Data Center (MTDC) leases were signed in the United States in 2013.  While on the surface that may pale in comparison to the amount of office and industrial leasing activity that takes place in a given year, it continues to validate the asset class as being worthy of inclusion as a core real estate investment.

Moreover, this amount of leasing activity has been consistent for four years running.  While clearly the technology companies have dominated in leasing space, a number of non-Web 2.0 enterprises leased large data centers including Bloomberg, Unisys and Bank of America.

We are often posed the question as companies move to the cloud; “Will this decrease the demand for data centers?” The availability of the cloud has not changed the demand, it has merely changed how the companies are electing their outsourcing alternatives.  By most industry estimates, only 20% of data centers are currently being outsourced. 

By and large, the emergence of a new real estate class has created increased competition, providing less expensive data center alternatives and a wide variety of  outsourcing options.  It’s a far cry from 2007 when data centers followed the Henry Ford  model: “Any customer can have a car painted any color that he wants so long as it is black.” The geographical divergence, the redundancy options and the density (power) of data center properties have given customers a full menu of choices.

In Canada, Bell and Rogers acquired four of the largest colocation data center companies during the last eighteen months.  As the purchase prices ranged from 13 to 15 multiples on EBITDA these colocation rates will escalate. The purchasers will look to sell these customers more managed services in order to justify these pricey acquisitions.

For a more comprehensive overview of 2013, please click here for our Year in Review newsletter.

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