Study: Data Center Supply Near All-Time Low

Data center vacancy rates will reach an all-time low in 2010 as available space is absorbed and the credit crunch squeezes new construction projects, according to an analysis by commercial real estate specialist Grubb & Ellis.

The situation is becoming critical for companies with large requirements, according to Jim Kerrigan, the director of Grubb & Ellis’ National Data Center Group, who said he can currently identify only six options in the United States for data center users who need more than 7 megawatts of power or more than 50,000 square feet of contiguous space.

“The problem is that we have too many large tenants chasing that space,” said Kerrigan. He doesn’t quantify the supply/demand imbalance in terms of square footage, but says the looming shortage is as acute as he’s seen. Kerrigan is an industry veteran who has specialized in data center real estate since 1999, and been involved in millions of square feet  of leases involving the industry’s leading players. 

Kerrigan said several traditional data center hubs are facing acute shortages of space that can accommodate large users in a short time frame. “Northern Virginia has some issues because there’s major demand there,” said Kerrigan, nopting a recent series of large leases. “We still don’t know about the government requirements coming out of the stimulus package, which could have a big impact on supply. Santa Clara (Calif.) also has a big supply issue right now.”  

Healthcare Firm Expands with DataChambers

Here’s an example of a provider benefiting from data center demand in the healthcare industry: DataChambers said this week that the Premier healthcare alliance has expanded its multi-year contract for disaster recovery and business continuity services in DataChambers’ facility in Winston-Salem, N.C. The expansion doubles the amount of space Premier occupies in the Winston-Salem data center, as well as the number of servers.

“After an internal review, we determined that many more of our systems were critical to our day-to-day operations and needed to be part of our disaster recovery plan,” said John Huddle, senior director of infrastructure at Premier. “In addition, we’ve recently acquired new products that demand real-time processing.”

That includes SafetySurveillor, a solution used by hospitals to track infection trends and to detect potential problems before they impact patient care. The effectiveness of the service depends on continuous, around-the-clock availability to physicians.

Stimulus Includes $3.4B for IT Infrastructure

The Obama administration’s economic stimulus package includes approximately $3.4 billion in spending for IT projects, including heavy investment in electronic health records and infrastructure upgrades for the departments of Homeland Security, State, Veterans Affairs, and Health and Human Services.  

The stimulus plan includes $50 million earmarked for Department of Energy research into energy efficiency and renewable energy in IT and communications. The appropriation for the Office of Efficiency and Renewable Energy (EERE) is part of $16.8 billion in funding the DOE received in the American Recovery and Reinvestment Act, which President Obama signed into law on Tuesday.

The EERE funding is among the most direct benefits for the data center industry, along with $500 million earmarked for a new data center for the Social Security Administration. But the 400-page stimulus package dedicates an additional $2.8 billion to a broad range of investments in IT equipment, infrastructure and security. 

Are Colocation Prices Heading Higher?

Will the credit crunch lead to higher colocation prices in the busiest Internet markets? With projections of IT budget cuts and weaker demand for many products and services, why would colo prices go higher?

The talk of rising colocation prices has been stoked by a recent report from Tier 1 Research that sees the credit crunch creating a tight market for data center space. Some of the report’s key findings have been discussed this week at Nortia Research and Telecom Ramblings.  

“The recovery of the economy from the current slowdown will likely result in a temporary exacerbation of price increases, as demand will grow significantly faster than supply during the first 12 months of a recovery,” said Jeff Paschke of Tier 1. “This is due to the datacenter construction cycle, which varies from nine months (for a phased expansion) to 18 months (for a greenfield build). Demand, of course, has no built-in delay, which will likely cause the sort of cross-market price increases seen during 2005.” 

Domain Buying Slows as Parking Payouts Falter

If you’re one of those people that’s annoyed by all those ad-packed domain “parking pages,” you may be seeing fewer of them in the future. Domain monetization is becoming more difficult as ad payouts decline, which is translating into a slowdown in new domain registration.

VeriSign said yesterday that 11.5 million new domains were registered in the third quarter of 2008, a decline of 2 percent from the previous quarter and well off the high of 14 million in the first quarter of 2008. The renewal rate for existing domains slipped to 72 percent, down 1 percent from the second quarter and down from the high-water mark of 77 percent seen in late 2006.

AT&T to Cut 12,000 Jobs, Capital Spending

AT&T said today that it will lay off 12,000 employees and reduce capital spending as it seeks to adapt to a tough economy and the shift to wireless technologies. The telecom giant said it plans to reduce its capital expenditures from 2008 levels, and will detail its 2009 spending plans in January.

It’s not immediately clear how the cuts in staff and capital spending will affect AT&T’s huge data center network, which includes 38 facilities around the world with more than 2.3 million square feet of data center space. Larry Dignan notes that the company’s 2008 capital spending is likely to reach $20 billion.

Skanska Hired for $150M Data Center Project

Skanska says it has been awarded the construction management assignment for a new, $150 million data center project in the western U.S. for “one of the largest companies in Internet trading.” The facility will be approximately 19,000 square meters, or about 204,000 square feet. Construction has begun and is scheduled for completion in May 2010, according to Skanska, which said its focus on energy efficiency was “decisive” in its selection.

“We have focused on developing our expertise within Green Construction,” says Mike McNally, President, Skanska USA Building. “Our green solution benefits us, the customer and the environment. We strengthen competitiveness for both parties while at the same time reducing environmental impact.”

Skanska is one of the world’s leading construction groups with expertise in construction, development of commercial and residential projects and public-private partnerships. Skanska USA is based in Parsippany, New Jersey and has approximately 4,000 employees.

Venture-Backed Companies Hunker Down

One of the biggest differences between the dot-com crash and the current financial crisis is the data center sector’s exposure to venture-backed startup companies. That’s not to say that data center and colocation companies haven’t leased plenty of space to venture-backed companies; only that startups play a far smaller role in the overall client mix than they did in 2001.

That’s a good thing, as major Silicon Valley venture capital firms are telling their portfolio companies to cut costs and prepare for lean times ahead. GigaOm was ahead of the curve with its coverage Wednesday of Sequoia Capital, which called a meeting to warn portfolio companies of grim times ahead and urge them to cut costs and become cash-flow positive as quickly as possible. Sequoia isn’t alone, as Benchmark Capital and angel investor Ron Conway have shared similar sentiments with their portfolio companies.

How concerned are the VC firms? Sequoia’s “slide presentation of doom” is now online at TechCrunch and VentureBeat.