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CBRE’s Luke Denmon: “Enterprise and Hyperscale Users Have Different Definitions of Great Data Center Space”

 
Nov 13, 2017
by Josh Anderson

PHOENIX, AZ — At our Southwest Data Center Summit in Phoenix November 2, we welcomed Luke Denmon of the Data Center Solutions team at CBRE, who provided a morning keynote titled The State of the Data Center Industry, Current Demand Levels and the Evolving Types of Supply, Cloud vs Enterprise. Below is the second part of a transcription of that keynote address (be sure to check out the first part for the full story of the explosive growth in the data center space).

“What we are seeing is that enterprise and hyperscale users have different definitions of great data center space,” he began. “So hyperscale users, which are all of the deals circling this market, thy want geographic expansion outside of the big primary markets. Look at Northern Virginia and Silicon Valley. The cost of a raw foot of land, is somewhere between 26 and 27 dollars per square foot. Look at Mesa’s tech corridor, you’re looking at somewhere in the neighborhood of $5 and $8 dollars per square foot, depending in who you talk to in that corridor.”

“So traditionally with data center development, your land base doesn’t matter, because you’re throwing so much into it after you get the dirt,” he explained. “But when you’re talking about a delta of 4x or 5x, you see that have a significant impact on rents. Rent obviously runs back to the TCO to the tenants. So these cloud provider are trying to get somewhere where they can buy cheaper dirt and build at the same sort of cost, and provide continually stabilized low rates that they’ve been able to offer through construction efficiencies.”

“So they’re looking for that, but they’re also looking to grow their revenue through platform adoption, and they’re looking to be able to scale rapidly,” said Denmon. “The best example of that here locally would be CyrusOne probably. If you look at CyrusOne’s expansion, it’s all being driven by those hyperscale cloud firms. End users or enterprise users, like insurance companies, bank, big grocery chains, retailers, what they are looking for is flexibility. Every time they go to build a new app, their CFO and CIO and everybody are telling them to build within the cloud.”

“Well they start building in the cloud, and it turns out that data sets sitting inside Amazon are super expensive,” he continued. “We all know that drill. Now they’ve got to pull it back out. They’ve got to be able to adjust not only their application level infrastructure, but they’ve got to tie it back to their physical infrastructure and make sure they’re managing that balance in a cost-effective way. But because they’re trying to figure out what is most cost-effective to live in the cloud and what is most cost-effective to keep at home, they would all prefer to do that in a data center that has a cross-connection to the cloud, rather than having to pay the transport costs for the IP to dump data back up to Portland or if you’re on the east coast, back over to Virginia.”

 

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