Economic Development and Site Selection for Data Centers

July 2007

As featured in the July/August issue of Trade & Industry Development Magazine

By Justin Sabrsula, Junior Project Manager

AngelouEconomics

In the wake of the bursting of the technology bubble in 2001, economic developers focused on high-tech industries attempted to diversify the technology economies of their communities. For many economic developers, diversification away from the traditional high-tech industries of software and information technology led to efforts focused on growing and attracting emerging industries such as biotechnology, nanotechnology, and renewable energy. While some cities have succeeded in attracting these high stakes, specialized industries, many smaller communities have largely failed to develop alternatives to traditional high-tech industries. As a result, economic developers are once again looking to information technology to help grow their high-tech employment base.

One emerging niche sector of the information technology industry is the nationwide investment in data centers. As the need for data storage and server farms continues to grow, data center operations have become the most recent target of economic development efforts. In this article, I will explore the rise of data centers as an enabler of information technology, trends in the data center industry, why communities should be targeting data centers as part of their economic development strategies, and what site selection characteristics a community needs to attract data centers to their community.

What is a data center?
Data centers are any building designed solely to house computer equipment. Data centers can serve multiple functions, including housing computer processing power, hosting enterprise software applications for large companies, housing networking equipment, including website servers, and perhaps their most common function, housing data storage and backup facilities for companies. A data center typically provides some level of on-site information technology staffing, redundant electrical and mechanical systems to maintain computers in an ideal operating environment, and increased physical and information technology security beyond what would be available at a company’s offices.

Data centers are classified into four tiers according to ownership and reliability. These ratings are maintained and defined by the Uptime Institute, though the Tiers function more as guidelines than as formal classifications. Data center reliability is measured by “uptime,” or the amount of continuous time that a data center can operate without interruption. As the amount of uptime needed for a certain business has increased, data centers have been built to house increasingly complex mechanical and electrical support systems and more IT professionals. Additionally, as the complexity of data center support systems have grown more robust, data center capital expenses have increased dramatically. The Tiers of data centers are as follows:

Tier I-II: Tier I and II data centers were first built in the late 1960s and early 1970s. These data centers were first established as enterprise (owned and operated by one company for internal use) computing centers, but now are typically owned by operating companies and leased for use by small businesses and for backup data storage. Tier I and II data centers typically have only one source of power, water, and internet access, though Tier II data centers provide redundant on-site systems to prevent downtime from equipment breakdown. Tier I and II data centers provide the most amount of downtime, usually rated as approximately 1 day per year.

Tier III: As additional services and more uptime became standard in the mid-1980s, Tier III data centers were first introduced. Tier III data centers are typically owner-occupied, and are used for IT service centers and help desk operations for companies. Tier III data centers provide larger support space, longer staffing hours, and less downtime (typically around 2 hours per year) than Tier I and II data centers.

Tier IV: Tier IV data centers, first introduced in the mid-1990s, provide virtually uninterruptible access to data and computing services and are the most up-to-date, secure, and in-demand data centers. Both enterprise and for-lease Tier IV data centers have been developed, as even small companies will increasingly require little to no downtime in access to data storage and enterprise computing applications. Tier IV data centers have the highest power requirements (more than 150 watts/m2), and provide large support spaces, 24-hour staffing, and uninterruptible cooling with virtually no downtime (less than 30 minutes per year). Tier IV data centers require multiple active and redundant sources of electricity, water, and fiber-optic cable access, as well as redundant mechanical and electrical systems in the data center itself. Tier IV data centers do not have downtime for maintenance, and are extremely resistant to downtime caused by electricity outages, as most Tier IV have independent backup generators. New Tier IV data centers being built in the U.S. range from 75,000 to 250,000 square feet of raised floor space at a cost of roughly $220 per square foot. Tier IV data centers require 15-20 megawatts of power per 100,000 square feet of raised floor.

As the data center industry has matured, Tier IV data centers are virtually the only type of data centers currently being constructed. While data centers are still relatively unknown in the economic development world, there are many drivers of growth and emerging trends in data centers that economic development organizations and site selectors should understand to best attract and site data center operations.

Trends in the data center industry
Many different industries utilize data centers for their operations, including nearly all Fortune 1000 companies. In addition, health care providers, financial services companies, banks, telecommunications firms, and any internet-based companies, especially search engines, e-retailers, and web hosting providers also utilize data centers. The growth in data center utilization is being driven by a variety of factors, including:

IT Consolidation: As data center usage grew over the past 15 years, companies often created ad hoc data centers within or near existing operations, with a result of multiple data centers constructed with different underlying technologies, redundant overhead and staffing costs, and soaring electricity costs. Companies have discovered great cost savings from IT restructuring and consolidation by combining these data center operations into larger, more reliable, and more standardized operations based on updated technologies. In general, this movement to large Tier IV enterprise data centers is the primary driver behind the growth in data centers and provides the best opportunities for communities to attract data centers.

Increased reliability and technological needs: At the same time as companies were expanding data centers, computers continued to grow more powerful and consume more electricity, which has become one of the largest costs for many technology companies. Higher computer density, increased uptime and backup requirements, and the replacement of outdated Tier I and II data centers has been a prime driver in data center growth in the past few years.

Government regulations: In the wake of Enron and the growth in health care services, government regulations regarding corporate information and private health care information have been strengthened. Sarbanes/Oxley has required additional data storage for corporate activities, while HIPAA (Health Insurance Portability and Accountability Act) has required the digitization of health care records and increased technical and physical security to prevent the disclosure of medical records. These activities require large data storage centers which must be accessible continuously.

Disaster prevention and recovery: After 9/11 and Hurricane Katrina, companies have realized that offsite, disaster-resistant data centers are necessary to ensure continuity of operations in the wake of a disaster. New Tier IV data centers are being built in retired Air Force bunkers and silos, in underground locations, and in rural areas outside of companies’ primary markets to ensure that interruptions due to natural disasters, terrorism, or catastrophic electrical grid failure do not prevent ongoing operations of a company. Sun Microsystems has announced a plan to build a portable data center in a shipping container which would be able to be transported to help companies rebuild their data from disasters. Some companies such as Continental Airlines are even co-locating emergency operations centers with these secured data centers.

Internet market growth: Perhaps the biggest driver of data center growth is the explosive growth in internet-based businesses, including search engines, electronic banking, and e-retailing. Data center developers have estimated that demand for new Tier IV data centers is outstripping supply by approximately 20-25% per year. With almost 5,000,000 square feet of data centers built in 2006 alone, communities have an unprecedented opportunity to capture data center growth. Google, Yahoo, eBay, and Microsoft have been among the largest builders of new data centers in the United States over the last few years. Google’s data centers store copies of the entire internet in their data centers to better serve their search customers, while e-retailers must be able to service their far-flung customers and long-tail business models with robust data storage and web service.

 

Why your community should target data centers?
While diverse and various trends are driving the growth in data center construction, most communities have not targeted data centers as a source of economic growth in their communities. There are, however, a number of reasons to seek to attract data centers to your community. First, data centers provide tremendous capital expenditures, including local purchases of construction materials for these complex centers. Additionally, data centers provide construction jobs and often use local vendors for cleaning, landscaping, and security services. The most compelling reason for data center attraction is that data centers provide high-paying service jobs. Data center-associated jobs, including information technology repair and upkeep jobs, software developers, and electrical and mechanical maintenance provide excellent wages and benefits for employees in a community. In March 2007, Google revealed that its data center operations in Lenoir, North Carolina would employ 250 people at an average wage of $48,000, which does not include the additional maintenance and security services. A typical data center can employ up to 100 people per 100,000 square feet of raised floor space. This number increases depending on the type of data center services provided; data recovery, call centers and help desks, disaster command centers, and personal data storage requiring regulatory oversight services all require additional employees.

In addition, as electricity costs and power consumption from data centers continue to increase, many data center owners and operators are looking to provide more environmentally friendly options for their customers. Recently announced “green” data centers utilize green-building standards and are often powered by renewable electricity. These type of data centers can help provide communities a foothold into the growing renewable energy and green-building construction sectors of the economy.

Finally, communities that are attractive to data centers can often build a cluster of high-level information technology services from data centers. San Antonio, Texas offers a glimpse at an emerging data centers cluster, with the announcements of Microsoft, NSA, Stream Realty, and Christus Health locating in San Antonio over the past year. While the clustering of data centers has typically been confined to areas near major clusters of internet-based businesses, including New York City, Washington, and Silicon Valley, as electricity costs and disaster recovery continue to grow in importance, many secondary markets have opportunities to build clusters in high-paying IT jobs associated with data centers.

What do site selectors look for?
To best attract data centers, communities must meet the strict site selection requirements for data centers. AngelouEconomics typically provides reverse site selection services to communities to help evaluate sites and community suitability for data center location as well as site selection for data center clients. Given data center industry growth and the lack of suitable, data center-ready sites, communities that pre-plan for data centers will quickly move to the top of the site selection list. Our data center clients focus on a number of measures of appropriateness for data center sites, including:

Community: A community seeking data centers must meet several site selection requirements. Communities located near major cities and corporate centers will be able to provide access to data centers without the risks of location in a major metropolitan area. Communities with direct air service to these major cities will also benefit. Besides proximity to major metro areas, though, data center operators look primarily at two factors: electricity costs and labor availability and costs, as these are the primary drivers of data center operating costs. Industrial electricity rates under 5 cents per kilowatt hour are essential to attracting data centers. As cheaper-powered locations are increasingly saturated with data centers, this ceiling may begin to rise. Labor availability focuses on the availability of college-educated workers, specifically in the information and business & professional services sectors, in a community. Communities with lower than average labor costs will also play well with data center developers, though this is less important than electricity cost and labor availability. Communities should also be relatively immune from natural disasters, particularly hurricanes and earthquakes that would disrupt service.

Site: Once a community has been identified as being able to provide cheap electricity and a suitable number of workers, site-specific locations must be examined to determine appropriate sites. Data centers require large parcels of land for expansion and security of the facility. Sites of 75 to 100 acres are typically required, though larger sites can also be used. Some sites may have existing buildings suitable for data center development, although greenfield sites are typically preferred.

Utility availability and taxes: Sites must be served by two independent electricity transmission connections. These connections must tie into different electrical grid substations so as to provide the most uninterruptible power supply available. Multiple fiber optics providers able to serve the site are also a necessity, so that downtime on one network will not bring down the entire data center. Water service onsite, along with sufficient service and low industrial rates will also be necessary for successful data center sites. Low utility taxes and franchise fees will also reduce costs for data centers.

Disaster risk and incompatible uses: Sites must be relatively immune to site-specific risk. Sites located in a flood plain will be automatically excluded from data centers, as would locations near coastal areas vulnerable to hurricanes. Data center operators also typically like to avoid areas near flight paths, rail lines, fault lines, and other abutting and onsite uses which produce large amounts of vibration and electromagnetic interference. Sites that are located in areas without these drawbacks will be very attractive to data centers.

 

Ultimately, data centers provide an excellent opportunity for rural, mid-sized, and large communities to attract IT infrastructure and jobs. Enterprise Tier IV data centers, which provide virtually uninterruptible access and 24 hour staffing, are being built across the nation to catch up with the surge in demand caused by increased governmental regulation, IT consolidation, and growth in electronic services. Small towns like Quincy, Washington, The Dalles, Oregon, and rural parts of North and South Carolina have been transformed by corporate data center locations. Data centers offer these areas one of their only opportunities to attract a corporate technology presence. While most of these communities lack traditional technology sector assets such as large research universities and local venture capital, small communities have significant advantages within the data center niche. By pre-planning for data center sites, communities providing low cost utilities, an available workforce, and disaster resistant sites can benefit from the wave of new data centers being built throughout the nation.