Planning your Data Center Exit Strategy: Part 1
Updated: Sep 25, 2019
This is Part I of a series of posts about strategically planning Exit Strategies when selecting a Data Center site or solution. Read Part II, on Drivers of Value in our blog.
Whether you’re moving to the cloud, considering a new location or changing assets in your investment portfolio, contemplating a plan B is always a positive move. When stakeholders look to the future, it becomes crucial to think: ‘what if we need to Exit?’.
Read along on the first instance of our two-part series on Exit Strategies.
Builders, users and developers spend tons of time on Data Center site selection and design. Often Data Center facilities are long-term investments and the idea of disposing of a newly developed site can be difficult, so there is often a lack of planning involved with developing an exit strategy.
Given the massive investments required in opening a new location, much of the planning done throughout the industry tends to be forward-looking, neglecting the idea of leaving or selling the asset. Whether you’re relocating or considering new cloud services, having an exit strategy can give your project the flexibility to maximize the value all assets long-term.
Read below as we discuss the key elements of a successful Data Center Exit Strategy:
1. Know Where To Locate Your Data Center.
Data Centers have very specific locational needs depending on the function they serve, however this may not always align with market demand. The location of an asset doesn’t always translate into value when planning to sell or repurpose. Repurposing can impact the resale value of the asset between 20 and 70 percent if an exit strategy is not planned for.
Transforming a major location in rural or non-traditional data center market can become a challenge when making decisions about a potential exit.
2. Consider Short, Medium and Long Term Factors
At Cushman & Wakefield, the site selection process carried out is hyper-focused on Total Cost of Occupancy or TCO. This perspective is fairly new, as the process used to be influenced by other priorities such as proximity to Head Office and proximity to IT staff, affecting the decision-making process. Although convenient when looked at from a short to medium term perspective, these might not be the most crucial aspects for the long-term planning of selection and design, if an exit strategy is considered.
As Data Centers display exponential growth in order to meet market demand, taxes, incentives, and cost of energy have been rising in priority. The reality is that the cost base including taxes on power will impact the economics and value of all sites. With current trends, locating in Tier II or III markets has a large impact on the long-term value of an asset. In places where tax incentives draw you into certain locations, it is important to consider the overall cost efficiency before making a decision.
3. Learn About Strategic Site Selection
Our industry has greatly improved the ability to make effective site choices in a way that reduces both associated risks and costs. At Cushman & Wakefield, we evaluate each project and look for solutions that fit each client’s technical, strategic and financial requirements. Our advisory considers an Exit Strategy an important part of this process, using our proprietary scorecard to rate and rank each potential location or facility.
Ready to make your next move into Data Centers? We are eager to connect you with an industry-leading team of experts that can advise you on your next Data Center Requirement.
How does site selection impact your exit strategy? – don’t just pick a location that suits your needs. Strategic Site Selection is about peeking into the market and considering all the options available in case your organization is not ready to own and operate this kind of facility.
4. Think of your Company’s IT Capacity and Maintenance Capabilities
With the high rate of change impacting everything from chip capabilities to applications that operate inside a data center, adapting and predicting IT load and required changes has proven a difficult task. IT managers rapidly refresh and swap out servers and network gear, resulting in equipment distributed over the entire white floor area even though racks may not be filled and overall density may be low.
Highly inefficient use of data center design and infrastructure results in high PUE’s and high operating costs.
With many data center operators under new pressure to reduce costs, the obvious solution would be to compress the servers and racks into a denser, more efficient configuration while freeing up space to be re-leased to a third-party. This can seem as a great alternative solution to generate revenue and reduce operating costs but in reality there are complexities in executing this from an IT perspective. From a facility perspective, modifications will be required to multi-tenant such a site that may compete with other project priorities. Implementing such additions would likely include required capital to make changes in design, security and access.
Can optimizing the space in your facility be considered an effective exit strategy? We believe it can. If planning is done upfront, is it more likely that the risk inefficient use of the data center design is mitigated with effective use of space.
5. Evaluate Many Design and Management Service Options
As pressure from capital requirements and operational budgets increase, more and more users have started to adopt wholesale Data Center leasing as an effective way to manage information. Third party operators such as Equinix, Digital Realty and EdgeConnex have proved their ability to build and operate as good or better than users could keeping costs low, requiring less capital and providing more flexibility.
Careful planning around the drivers of value will greatly influence a data centers’ marketability, regarding functionality, usefulness, and ability to provide long-term utility in the market. The resulting valuation of these site will be considerably better.
I hope this article has provided some insight into the importance of including an exit strategy when planning for a new data center location. Don't forget to reach out on LinkedIn and Twitter to evaluate how Cushman & Wakefield can help with your data center planning.
Randolph Borron