One of the many supply-demand imbalances that emerged during the dot-com boom was in data-center space. A lot more was built than was used, and prices collapsed when all the Internet startups went belly-up. I’ve been hearing reports, though, that the price of quality data-center space is now rising briskly, spurred by the continuing explosion in storage needs, regulatory requirements for data security, and the enormous power and cooling demands of ever-denser computing arrays. The latest evidence of a coming space squeeze is the purchase last week, by Apple Computer, of a huge 107,000-square-foot Tier IV center in Silicon Valley that had been built for MCI WorldCom in 2001 but had never been used.
Reporting on the buy, the San Jose Business Journal notes that:
valley developers completed some 3.5 million square feet of such facilities in 1999-2001. The real estate niche, once-considerable over-capacity, is dwindling steadily, meaning the cost of leasing or purchasing such facilities is rising accordingly, [broker Jerry Inguagiato] added. “Rental rates and purchase prices are very fluid at the moment” amid rapidly changing supply-and-demand dynamics, Mr. Inguagiato continued. “Users know the longer they wait, the more expensive these facilities are bound to get, so they see it’s in their interest to control these assets” by purchasing the real estate or negotiating purchase options for leased facilities. Users bought and leased more valley data center facilities last year than during the three previous years combined, Mr. Inguagiato noted.
So you can add space constraints to the growing list of factors pushing companies toward the utility model for IT supply.
As for Apple, why does it need all that new space? Well, if you’re about to make a move into the movie-downloading business, you better have a big data center in hand.