Investment Money, Funding Flows for Data Centers

The commercial real estate sector may be slumping on the whole, but data center investment and build out continues with managed services firms in the thick of things. Here are some quick stats behind the trend.

Consider the following:

  • Latisys this week announced a $110 million credit facility, which the colocation and managed services firm will use to expand facilities in markets such as Denver, Irvine, Chicago and Northern Virginia.
  • Earlier this month, Terremark said it has kicked off the building a 25,000 square-foot colocation facility in Amsterdam, identifying airport operator Schiphol Group as its anchor customer.
  • In July, Digital Realty Trust, a real estate investment trust focused on data centers, completed the $725 million acquisition of a five-property data center portfolio. The centers are in California, Arizona and Virginia.
Industry executives report rising demand for data center capacity and certainly cloud computing and managed services contributes to that. Digital Realty generates a bit more than a third of its revenue from colocation firms, hosting companies, managed services providers, and systems integrators, according to Michael Foust, the company’s chief executive officer.

Foust, speaking last week at an Oppenheimer technology conference, said demand for data center space requirements has improved in 2010. He said demand began to build last year.

“Now, I think we are seeing those requirements being deployed,” he said.

In some regions, data center demand is outrunning supply. In its mid-year report, commercial real estate advisory firm Grubb & Ellis’ National Data Center Practice cited downtown Chicago, Northern Virginia, the Twin Cities, and Manhattan as key underserved markets.

This looks like encouraging news, but one wonders about overbuilding and oversupply. We know how the previous data center construction spike turned out -- some of today’s MSPs are still recycling the remnants of the dot-com crash. This time around, will companies prove to be more adept at managing growth?

We’ll see.

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