Data Center Boom Reaches Smaller Cities
January 29th, 2007 By: Rich Miller
Corporate demand for data centers is likely to remain strong for years to come, and cost issues will lead many companies to build new facilities in smaller markets in the center of the U.S., according to John Boyd, president of The Boyd Company of Princeton, N.J.
Data center projects are “the fastest growing field in corporate site location,” according to Boyd, an expert in corporate site location who for 30 years has been helping America’s best-known companies plan real estate expansions. Many of these companies will build their own facilities, Boyd said. “The inventory of available sites is extremely low,” said Boyd. “We tell our clients to focus on the fundamental cost issues and not to key on existing facilities.”
Those cost issues will spur data center development outside of the major Internet markets and “NFL cities” that have thus far been home to the lion’s share of major data center projects. In recent months Boyd has released two studies on the cost of operating financial and healthcare data centers in U.S. markets.
In those studies, Boyd has highlighted the affordability of markets like Sioux Falls, S.D., Tulsa, Oklahoma and San Antonio, Texas. “(Corporations are) eager to look at lower cost, highly-secure locations,” said Boyd. These findings reflect the priorities for single-tenant corporate facilities, rather than multi-tenant hosting/colo centers or the massive centers to power search platforms for Google and Microsoft.
Multi-tenant sites focus on large markets (particularly Washington, Chicago and northern New Jersey), while access to cheap, abundant power has been a major factor in recent decisions for Yahoo and Microsoft, which have each started construction on huge facilities in Quincy in central Washington state.
Boyd’s most recent study calculates the annual cost for skilled labor, taxes, utilities, corporate travel, the availability of land, and other expenses to operate a 150,000 square foot healthcare facility with 150 workers. They give substantial weight to local academic programs that offer information assurance programs certified by the National Security Agency (NSA) or American Health Information Management Association (AHIMA), and thus are likely to produce skilled IT workers needed to staff secure data centers.
Disaster recovery considerations work against many of the cheapest markets for most corporate users. Seven of the 10 most affordable markets in Boyd’s studies are in Florida or Alabama, areas prone to hurricanes. Other low-cost markets lack the fiber connectivity required for data centers. “There are limitations to the trend to smaller market locations,” said Boyd. “You look for precedents.”
That’s why Boyd sees Sioux Falls as a prime growth market for corporate data centers. Citibank has a major call center in Sioux Falls, and payroll processing giant ADP is locating an $85 million data center there as well. The total annual cost of operating a data center in Sioux Falls is $16.1 million, the lowest for any market in Boyd’s study. Both power and labor are affordable, and Dakota State has an IT training program that meets the rigorous NSA standards for security.
Once an affordable city has developed the labor and fiber infrastructure to attract one major corporate data center, a “clustering” effect is often seen as other companies follow suit. “The cluster effect has been relevant in the life sciences industry, where you see clusters in Boston but also in San Diego and in Montgomery County, Maryland near NIH,” said Boyd.
The IT labor pool in smaller markets isn’t easy to assess, even when local schools have strong training programs. “Historically, these states have had a brain drain,” Boyd said. “Any world-class workers would take jobs in Chicago or Minneapolis. Now these world-class jobs are coming to them.”
Another key criteria is the amount of time it takes to deploy executives to the backup data center site. The Sept. 11th attacks forced companies to consider scenarios in which air travel is unavailable, which may favor locations in the center of the country over the “bi-coastal” approach to data center redundancy.
“When I first started 30 years ago, companies wanted to be near a hub (airport),” said Boyd. “9-11 changed that.” He says his studies use “executive time in transit” as a metric, which incorporates time for security checks in the terminal as well as time in the air. “That’s favoring airports that have not been as crowded, which favors secondary markets,” he added.
Data centers will be a major focus of site location for years to come, said Boyd, who estimates that the market for corproate data security spending will grow 18.7 percent in 2007 to $1.5 billion. Federal regulations like HIPAA are a major driver. “We see no end in sight to this rate of double-digit growth, due to demand from these regulated industries” like financial services and healthcare, said Boyd. “This growth will go beyond these two or three industries. Every industry is ultimately a repository of personal data.”
The regulatory requirements will also rule out offshore centers. “These data centers aren’t going to go to Bangalore,” said Boyd. “These brick-and-mortar facilities will stay within the 48 states.”
Mark FontecchioPosted January 30th, 2007
These studies by The Boyd Company have driven a lot of discussion in the industry about data center locations. The only thing I wonder is whether Boyd could factor in costs related to disaster-prone areas. Maybe something related to how often a hurricane hits a certain region in Florida, or how often and how damaging an earthquake in California could be. Because he concludes that Florida is a cheap place to build but advises against building there.
Re Florida and hurricane-prone areas: I gather there would be measurable costs related to insurance premiums, as most property/casualty insurers hiked their rates for Gulf area states after Katrina. In the case of corporate disaster recovery, disaster-prone areas are usually a non-starter. The risk equation depends on the use, though. Large data centers in El Segundo built by AboveNet and Exodus were passed over for financial firms looking for DR space, who apparently didn’t like the earthquake risk. But when the markets for online video and MMO games took off, big facilities in the LA market became more attractive, and both were bought up quickly by 365 Main and Equinix.