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If You Build A Data Center Will Tenants Come?

If you build a data center, will they come?

That question is up for debate within the commercial real estate community.  

Servers

Location, cost of power, a highly skilled workforce and cool weather make the Seattle area, as well as the whole Cascadia region, a top pick when it comes to data storage.

“The significantvalue-add for Oregon and Washington with data centers is hydroelectric power,” Westin Building Exchange strategic planner Michael Boyle said.

Still, it is tough to justify the investment in a data center without an anchor tenant lined up.

Boyle said typically it makes sense to have a planned data center one-half to one-third leased before commencing on construction. The exception may be eastern Washington, where construction costs may be lower than Seattle. Its inexpensive land and energy prices are also a factor.

The amount of data being shifted from in-house storage to the cloud is staggering, Vantage Data Center Vice President and head of marketing Steve Lim said. 

“We know that there is a need for new centers,” he said. “But we haven’t built anything speculative yet in Quincy.”

On the other hand, a data center takes at least a year to build, and often it is more like 16 to 20 months. And location is a key factor in the decision. Therefore, speculative building may make sense.

“Not many customers have that long of a planning cycle,” he said. “They need it before that.”

Vantage Data Center Vice President and head of marketing Steve Lim
Vantage Data Center Vice President and head of marketing Steve Lim

Vantage Data Centers is one of several firms that run data centers in Quincy, the small eastern Washington town near the Gorge amphitheater. There, the cost of power is 3 cents a kilowatt, compared to 10 cents a kW in a part of Santa Clara, California, not served by PG&E, he said. Santa Clara is home to Vantage Data Center's second facility.

Meanwhile, the Pacific Northwest’s proximity to countries like Asia and Australia decreases the latency time, which is measured in milliseconds. Latency time is important, especially in e-commerce. 

Latency — the time it takes for data to transfer from a storage center to a user’s device — becomes important when dealing on a global scale. Seattle’s proximity to the coast, as well as its northern location, makes it an ideal middle ground in which to store data.

Due to all these factors, Seattle is considered to be one of the nation's top data center markets. 

The highly skilled workforce attracts similar companies to the area, Boyle said. It is not uncommon for data companies to settle in the area and poach employees from the competitors.

Google, Amazon and Microsoft have created a strong, educated workforce. Now companies like Alibaba and Tencent are in town looking to pick up people, Boyle said.

Hear more from Boyle and Lim and other data center experts at Bisnow's Data Center Investment Conference & Expo, Northwest, April 25, at the Westin Seattle.