The Issue of Scale...

I have been quietly spending the last few months contemplating scale. Specifically scale of data centers and the impacts of virtualization to the delivery of scale. This is the first installment of a multipart series discussing what is and what is not out there in the data center realm.

There have been few announcements about large data center projects worldwide over the past two years. Mostly from Single Tenant Facilities (STF) like Apple, Google, Microsoft, and Facebook. I chalk this up to the capital markets being as dry as Melba Toast on a summer day in Vegas, so there hasn't been any capital to tap into to build new facilities so the big companies with credit are about the only ones who can do a build.

This leaves the rest of the market with Multi Tenant Facilities (MTF) strapped for space in the X megawatts up to the XXX Megawatts scale. The MTF markets are already experiencing stress in that the prime Tier III space is being gobbled up rapidly. I have had several discussions with folks outside the data center industry, or at best peripherally involved in it (like they shop for new space once every 8-10 years) and they say 'I don't see what everyone is talking about, there seems to be plenty of space out there'. For 10 cabinets or 20 cabinets I'm sure there is. For multiple megawatts from a single provider in a specific market? Ha ha ha ha... That's a good one.

In Northern Virginia, dozens of megawatts move every quarter, and have, for the past year. Companies are reluctant to publicize it. Why? They don't want the remaining inventory sucked up and for their ROFO/ROFR to get triggered because someone else needs a big chunk of space. There are two companies with buildings in Northern VA today that sat mostly vacant a year ago and one has sold out and the other will be full by fall. Another company on the West Coast that has pre-leased the entire first phase of their project before it was completed. Now that market has a few pockets for a few dozen cabinets when it seemed like there would be plenty of inventory for 2010-2011.

At the Data Center Dynamics conference in New York a month ago, Jim Kerrigan, one of the speakers said that "32% of the leased data center space is up for renewal by 2013" which means even MORE stress on the market is on the horizon with very little building going on and customers expanding out of necessity if nothing else.

Hopefully this helps establish a baseline for people trying wrap their heads around the two sides of the discussion about whether or not the Data Center market is tight on inventory. If you need a few cabinets in a few markets - you're fine. If you need 10 MW in 5 markets... Not so much...