Location Critical Factor in DataCentre Due Diligence
A key aspect of data centre build is the location. It is not just a question of the attractions of a location today, but how this may change over the 10-15+ years of expected useful life of the facility. There are numerous examples of how the attractiveness of a location has suddenly declined, linked to such issues as power cost and availability, changes in taxation, legal and regulatory issues or reliability.
BroadGroup Consulting has developed extensive expertise in this area working with data centre operators, users and investors in executing successful business and new market entry plans. BroadGroup has also worked with many government and investment agencies around the world in ensuring their locations are attractive and in developing benchmarking and economic value-add tools to provide insight into their relative competitiveness.
Simplistically, a location needs to have all the ‘basics’ in place – telecoms, power, reliability and business/legal environment. Such issues are often far from simple in reliability – for example, power issues include such factors as quality, price, availability, diversity, renewable and sourcing. A good example of meeting the requirement for long term certainty is in some of the Scandinavian countries offering long-term fixes on power pricing.
Then there are the ‘extra’ factors. These often vary widely by type of user but often focus around cost issues. A specific example has been recent initiatives to attract data centres to given locations – for example, 14 different US states now offer some kind of incentive to locate data centres in their districts, ranging from waiving of local taxes to specific grants and incentives.
One of the key challenges for the newer locations in the data centre world is the inherent resistance to change in the market. This has led to key data centre campuses and locations around the world. Take a location such as Ashburn in Virginia which already has 4m ft2 of data centre space, with another 800,000ft2 at the planning stage. In Europe, this has led to a concentration in markets such as Amsterdam, Frankfurt, London and Paris. In Asia, a similar theme can be seen towards Singapore, Hong Kong and Tokyo.
This means that other locations must offer some compelling drivers, whether it be a local requirement, lower costs or a particular advantage such as access to renewable energy.
This brings us to two of the main flaws in many data centre business plans – the lack of compelling benefits and differentiation from other players in the market. Many data centre plans have a distressingly common ‘me-too’ element with little thought as to what their target market demand, and how that will change in the future. This is particularly an issue for new entrants, who must fight to show they have the credibility and expertise to match existing players.
There can also be much of a ‘me-too’ element to other parts of the business model such as the data centre specification. For example, while there is an awareness of the need to have a ‘flexible’ design and incorporate ‘green’ elements, this is often done with little real innovation.
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