The Data Center Real Estate Group (“DCRE Group”) we host on LinkedIn just received its first acting member of Congress as a member, and I’m exceedingly pleased to see Anthony Wanger, Founder of i/o, posting regularly. If you haven’t seen their modular approach to data centers, I encourage you to check them out.
As the market is maturing, it’s great to see more data on the market coming from a broader set of research firms – most buyers and investors have been overly reliant on a limited number of analysts, which has led to a number of biases. One of the largest biases in my mind has been regarding supply and demand. I have enjoyed seeing quotes about “pricing insanity” when our research has shown there hasn’t been a lack of supply for many years now, as witnessed by stagnant and declining prices after inflation. Wholesale data center prices haven’t risen much above the first wholesale leases Gap, Yahoo! and Facebook concluded back in ’05/’06, and the retail bell-weather, Equinix, has been giving away more power per cabinet, which accounts for the bulk of their price appreciation.
The best practice today is to look at the market with an eye toward segmenting, both by product and region. There’s a vast difference between the market for a single-tenant enterprise data center (Google, Apple, Facebook), which gets enormous media attention, and the retail and wholesale colo markets, which account for the majority of transactions. Another fact to consider is that many of these firms talk about the “Enterprise” buyer, and yet, when you really start to dig into the numbers, the traditional Enterprise is nearly unrepresented in the colo industry. There are definitional differences from one firm to another, but by our numbers, Digital, the largest REIT in the wholesale colo space, receives only 5% of its revenue from Enterprises. Of course, now with Iron Mountain expanding their data center services – they have more than 150,000 customers globally – there will likely be more activity from traditional firms who demand longevity and trust. Another great brand to check out.
The lines are starting to blur, as the REIT definition is expanding to include retail colocation, which is allowing DLR and DuPont to pursue smaller customers, and retail colo firms are pursuing hybrid retail-wholesale strategies. In the end, we recommend you simply look at the numbers…facts speak for themselves.