Q: Data centers have been in the headlines for quite some time… why?
A: They are “mission-critical” to our ever-expanding digital world, and they require real, specialty expertise to build.
To use an analogy, if the digital world around us were the human body, then data centers would be the heart. They store and pump the lifeblood of our digital ecosystem – data – working nonstop to keep everything from emails to enterprise systems running. As such, data center investing involves unique processes and considerations that demand highly specialized experts.
Here are five key attributes of data centers that highlight the need to identify an experienced owner, operator and developer of these critical assets:
1. Land entitlements and scalability
Data centers have complex development needs, putting the development timeline and budget above many other real estate types. Among these are specific zoning guidelines, the sheer size and scale of these facilities and most importantly, proximity to power sources. Big tech companies, known as hyperscalers, plan to build 1 gigawatt data centers which could require 500-800 acres of land and have multiple power substations on site.1 Moreover, because of their immense value and need for uninterrupted operation, data centers must generally be located away from environmental and industrial risks like flood zones, airports, railways, and hazardous facilities.
2. Operational demands and costs
Data centers have extensive operational costs given their size, need for power and uptime. They have dedicated teams to monitor power usage and ensure equipment is not overextended given they run continuously. Because they require an uninterrupted power supply, backup generators are often non-negotiables.
3. Network infrastructure
Reliable, high-speed network connectivity is fundamental to data center functionality and success. This includes redundant internet connections (having multiple internet service providers to ensure continuous internet access in case one connection fails), high-speed internal networks and networking hardware capable of handling large data traffic volumes. If most new-build real estate developments require network infrastructure, a room tens or hundreds of acres long full of computers is likely going to need just a bit more.
4. Cooling systems
Advanced cooling systems are essential to manage the heat generated by servers and enhance the longevity of the hardware. Much like a car engine or brake system is limited by how well it is cooled, the performance of servers depends heavily on effective thermal management. This is an area in which we are seeing a premium placed on new-build, modern, energy-efficient infrastructure – with liquid and immersion cooling increasingly favored over traditional air cooling in modern facilities.2
5. Security
Implementing robust security measures is critical to protect against potential physical and cyber threats. Physical security might involve physical security teams, perimeter fencing, 24/7 surveillance systems, and advanced access control systems (e.g., biometric scanners, multi-factor authentication, etc.). Cybersecurity may include firewalls, intrusion detection, data encryption and disaster recovery plans. It follows that the more valuable a property is, the more investment there will need to be in its security.
As you think about gaining exposure to a meaningful and exciting sector in data centers, keep in mind that it will likely be important to identify experienced investors with in-house expertise to properly manage the idiosyncrasies.
