MINNEAPOLIS-ST. PAUL

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Data Center Capacity Expands; Companies Lean Toward Outsourcing

Q4 2013 | DATA CENTER

DATA CENTER MARKET REPORT

National data center developers continue to pursue site options in the Minneapolis-St. Paul area. Land is preferable but space conversions are also considered to address time to market and open up opportunities at infill sites. Locations must be fiber-rich, have sufficient power and redundancy. The following is an update on local data center projects and availabilities:

> Dallas-based Stream Data Centers is working with M.A. Mortenson Co. to build a 82,000 square foot data center on 11.78 acres of land they purchased in Chaska. This project will be completed in Q1 of 2014.

> Denver-based ViaWest purchased the former Entegris headquarters in Chaska and is renovating the 158,000 square foot property with half of the space designed as a Tier IV data center. This property is under construction with completion of approximately 40,000 square feet of raised floor on track for the Q1 of 2014.

> Compass Datacenters out of Dallas is under construction of an 89,000 square foot data center building in Shakopee with Savvis committing to 1.2 megawatts (MW) of its first phase.

> DataBank acquired local colocation company Verispace, which operates 10,000 square feet of data center space at 7700 France Avenue South. DataBank has added 7,500 square feet of raised floor at 7700 and hopes to expand to a second location in the Minneapolis-St. Paul market.

> The American Express Data Center at 1001 3rd Avenue South is in the process of being vacated and is for sale. This enterprise data center represents the largest block of raised floor in the Minneapolis CBD and is in close proximity to the 511 Building, the major interconnection hub of the upper Midwest. Acquisition of 1001 3rd Avenue South by a multi-tenant operator could attract multiple carriers and spur consolidation of data center tenants to this location.

As these new properties come online, companies with underutilized data centers are going to have a harder time subleasing their extra space. The window of opportunity to capitalize on market conditions have passed now that potential tenants have options at new projects. As new facilities come online, active inventory will be tracked as readily available uninterruptable power supply (UPS) and quantified in megawatts (MW). The ability to accurately track the market in these terms

vs. square footage in the pipeline will be another sign the Minneapolis/St. Paul data center market is maturing.

While national data center service providers have been pushing forward on projects and seeking to meet the dearth of data center space in the Minneapolis-St. Paul market, the pace of decision-making from enterprise users has proved to be a little slower than expected. Corporations are working through the internal studies to refresh, build, outsource or hybrid while service providers continue to build relationships with key companies.

Part of the growing pains in the Minneapolis-St. Paul data center market is providers learning its customer’s entry point. National wholesale providers previously bullish on large blocks of space and power for the market are offering more retail and managed service options to capture smaller or hybrid requirements. The need for outsourced data center services will continue to grow in Minneapolis -St. Paul but it is yet to be seen if there is enough demand for a competitive wholesale market.

MARKET REPORT | Q4 2013 | DATA CENTER | MINNEAPOLIS-ST. PAUL

COLLIERS INTERNATIONAL | MINNEAPOLIS-ST. PAUL

THE OUTSOURCING QUESTIONIn the Minneapolis-St. Paul area, companies such as Target, United HealthCare, and Allina are increasing their technological footprint and building their own facilities to meet data center needs. Organizations of all sizes face the decision to either build or outsource this important function. Companies usually build their own facilities in order to maintain control of the operating environment and security. In addition, controlling the real estate guarantees the ongoing functionality of the site and allows for customization of the space including offices for their own personnel. But many companies are also seeing the advantages to outsourcing their data center needs. In addition to the lower initial cash outlay for retail and wholesale leasing (see chart below), Tim Huffman, Executive Vice President and Global Director of Colliers International Technology Solutions Group outlines 10 benefits of outsourcing a data center including uptime, risk mitigation, discounted power costs and connectivity. The following are highlights of the benefits of outsourcing:

> Data center outsourcing is a growing trend, with many large enterprises embracing the financial and operational benefits associated with wholesale co-location solutions.

> Corporate owned and operated data centers might not be built or operated to the standards of third-party data centers, since many were built more than 10 – or even 20 – years ago.

> Creating distance between a company’s corporate headquarters and its production data center eliminates the risk of a single event – such as a utility blackout or a natural disaster – taking out both facilities.

> Power is one of the largest cost components in a data center. Large-scale data center operators typically consume 100 to 200 watts per square foot of space, which enables them to negotiate very favorable rates with public utilities. In a data center hub market, power can cost 40 to 60 percent less than the national average.

> The mixed-tenancy data center model provides an environment that is rich from an ecosystem perspective. Along with a wide variety of telephony options, tenants benefit from the ability to cross-connect in the same building with other companies that may be part of the supply chain, customer base or financial transaction functionality. This ecosystem benefit improves latency-sensitive interactions.

You can read all of Tim’s article on data center outsourcing at: http://www.baselinemag.com/it-services/ten-benefits-of-outsourcing-a-data-center

451 RESEARCH: DATACENTER 19 © 2013 451 RESEARCH, LLC AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED.

FIGURE 8: BUILD VS. LEASE OPTIONS – CUMULATIVE CASH OUTLAY

Taxes

Taxes can influence overall costs significantly – particularly sales tax on IT equip-

ment that will be housed in the datacenter. We did not include IT equipment costs in

this model, since they are generally the same whether leasing or building. However, in

some cases, as in Northern Virginia, datacenter providers with large enough campuses

to employ a certain number of staff receive sales tax abatements on the IT equipment in

their datacenters. This can be a significant savings for their customers, because the cost

of IT equipment, refreshed every three to five years, can be as much as the cost to build

and operate the datacenter.

$200

$150

$100

$50

$0Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15

Mill

ions

Greenfield Powered shell Wholesale Retail

BUILD VS. LEASE OPTIONS - CUMULATIVE CASH OUTLAY

Source: 451 Research

MARKET REPORT | Q4 2013 | DATA CENTER | MINNEAPOLIS-ST. PAUL

COLLIERS INTERNATIONAL | MINNEAPOLIS-ST. PAUL

Colliers Minneapolis-St. Paul Technology Services maintains a proprietary database of available data center space. For additional information and to access this data please contact:

Dan PetersonSenior Associate | Technology SolutionsDIRECT 952 897 7713dan.peterson@colliers.com

MINNEAPOLIS-ST. PAUL DATA CENTER SPACE

Source: 451 Research

MARKET REPORT | Q4 2011 | OFFICE | MINNEAPOLIS-ST. PAUL

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