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Exit Strategy Part III - Drivers of Value

In our first article, we discussed the key considerations investors, users and service providers need to make when selecting a data center site or location. In part 2 we introduced the key drivers of value for data center facilities when it comes to real estate investments. Today, we want to expand on our infographic by providing more detail into what each driver of value entails and how to potentialize investments when considering a new data center location.

As mentioned in our previous blog, When it comes to data center real estate, planning upfront will potentially save hundreds of millions of dollars down the road if an exit strategy is required. To increase a Data Centers’ long-term value, priority needs to be given to the following primary drivers of value for an asset, particularly in a highly competitive environment:

1. Primary Data Center Maker

2. Low Geographic Risk

3. Low Tax Location

4. Low-Cost Electrical Rates

5. Design with the Ability to Multi-tenant in the Future

6. IT Deployment to Permit Releasing of Excess Capacity

Should your data center be near your headquarters?

When selecting a site for your Data Center it is important to consider locations that are not entirely unique to your situation. For example, your team might feel inclined to find a location in a remote rural area because it is close to your head office. This may seem to be a perceived benefit, but you may find it difficult to relocate in the future with a data center designed to be near your head office.

Instead, consider not only your own needs but also the potential market demand for data. Having an asset that is in high demand, for instance, near a city with high data consumption, will increase the ROI and provide flexibility by being able to quickly off-loading it if need be.

Making a decision solely on proximity to your head office will have a large impact on the value of the site. Making a decision on such a facility accommodates your company’s needs but might simply not be located near potential end consumers, lowering the value in case of a potential sale or re-lease.

How important are low-cost electrical rates in a data center?

Decision-makers should consider electrical rates and reliability of power delivery when deciding on a location for data centers. Power represents roughly 70% of the total operating costs in the U.S., so it is essential to have cost-efficient options in the site selection process. Consider important metrics such as infrastructure efficiency (DCiE) and Power Usage Effectiveness (PUE) early on in your planning stage.

The idea is to be prepared to accommodate potential growth opportunities in the future as well as your short-term density requirements. With growing power demands in the industry, as well as a clear push for efficiency in today’s data center market, you must see power as a key selling point in case you plan to exit. This includes evaluating the conditions of each location to ensure power quality is not affected by external forces such as natural disasters or poor distribution grids.

Good power delivery and fiber access are crucial when identifying a potential site to build or convert a data center if the exit strategy is to re-lease space for potential third parties. Passing high power costs to your tenants will decrease the value of your facility and reduce the potential ROI of highly sophisticated technology solutions built to support multiple users in one site.

Why should you look for tax incentives for data centers?

Different municipalities often have different tax rates and incentives that can have implications for large industrial facilities that dance around in the millions of dollars per year. Everyone involved in the decision-making process must understand the municipal boundaries and potential incentives, as well as tax and electrical rates that lower the operating costs of your data center as much as possible.

As more districts across the world jump to the data center train, you want to remain informed of new development in growing and established markets when it comes to facilities and incentives. Cushman & Wakefield’s Research and Insight team launches a series of reports on top markets twice a year. Read our most recent reports from 2019 and make sure you stay connected if you want to be notified with every new publication launch.

Is your data center location safe from risk?

Geographic risk can come in several forms. From weather and climate risk to seismic activity and the potential of flood in planes, it is important to make an informed decision about the conditions of a particular location. Additionally, infrastructural risks from nearby rail lines or flight paths to hazardous neighbouring industrial can all pose a risk to your data center space.

Given that it can be difficult to mitigate all these risks with location alone, other steps may be taken to reduce the risk of a catastrophic incident occurring.

Cushman & Wakefield provides key advisory services to support your company's investment in data. Contact us to learn about our proprietary model built to support valuation and acquisition with the best of research analytics and real estate consulting expertise.

Think of your potential to become a Data Center Facility Management provider

Typically companies would look at the potential amount of data to be handled by their teams when planning data center design. However, knowing that a potential exit can consider becoming landlord of a data centre space opens many opportunities when it comes to the size, location and layout. Being able to scale and design and technical capabilities for accommodating future growth provides valuable flexibility in the use of the asset.

There are plenty of examples of success cases for multi-tenant spaces, and many businesses offering more and more colocation services to accommodate open space in a facility that is ideally-fit for growth.

IT deployment to permit releasing of excess capacity

In the growing data center market, many users and service providers have opted to lease space in managed facilities, which opens an opportunity for partnerships with strong market players. When it comes to planning an exit, it is important to have a green light from your IT department, ensuring that there is potential for uniform cloud service delivery in a leased space.

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