Data centers are a bright spot in an anemic office rental market
While most of Southern California’s office rental market remains as anemic as the economy, one niche is experiencing robust growth: heavily secured offices where businesses house their all-important computer servers.
Nearly all of us send and receive signals through data centers every day. Simple tasks like browsing a website, paying a restaurant bill with a credit card or making a phone call may require their services.
In Los Angeles County, there are only about a dozen of these specialized buildings that protect the precious data of banks, oil companies, stores and all manner of other firms. But the need for them is exploding and more are on the way, real estate experts said, and the next generation will have perks for workers unheard of in the past.
“There is a huge disparity between demand and supply, and that disparity is projected to grow over the next five years,” said real estate broker Michael Siteman of Jones Lang LaSalle.
The soft economy is helping drive demand, he said. “Companies are trying do more with less, and the only way to do that is to automate.”
These days, automation requires electronic data stored and processed on servers. The innocuous-looking metal boxes are so crucial to corporate America’s ability to function that they are nurtured with obsessive care.
Some companies keep their servers in special rooms on site, but many others prefer to have them at an outside location that has reliable backup power if the lights go out and security worthy of the crown jewels.
At the Garland Center office building on the edge of downtown Los Angeles, visitors are photographed before heading down to a sprawling underground bunker built in the early 1980s by First Interstate Bank as an earthquake-safe haven for its computer operations. After passing a second guard station, guests to one server center operator reach a locked door that requires both retina and fingerprint scans to open.
After that buildup, the chilly, dimly lighted room inside is unremarkable. Rows of well-ventilated metal lockers house stacks of black servers, one to a shelf. Some of the larger clients cluster their servers inside custom-made chain-link cages.
Although the Garland Center is an ordinary office building above ground with white-collar tenants such as the Los Angeles Housing Department, its three underground floors house servers for 3,000 companies and institutions.
The businesses, whose identities are kept secret, rent space for their servers from data center management companies that are tenants in the Garland building. Managers such as Net2EZ keep their rooms cool and secure and can also take care of their customers’ servers.
Many businesses, though, insist that only their own technicians get access to company servers no matter where they are, said Michael Higgins, senior vice president of Internap Network Services Corp., another retail provider of data center space.
Internap recently signed a $12-million lease for an industrial building in Redondo Beach that is being upgraded to a data center intended to make life more pleasant for the people who put in long days and nights with the equipment inside.
“It will have Ft. Knox infrastructure with a bevy of amenities,” Higgins said. “Customers want to feel like they’re at the office or at home.”
The facility, set to open next year, will offer visiting tech teams such comforts as personal offices and lounges with Starbucks coffee, food vending machines, big-screen HD televisions with satellite feeds and video-game stations.
Higgins hopes such offerings will give workers a welcome break from the monotonous white noise of the electronics-filled server rooms. “They spend endless hours patching and replacing their gear,” he said.
Atlanta-based Internap is opening it first Southern California facility because the region is a leader in three of the top categories of data center users: entertainment, media and social networking.
“Customer demand led us there,” Higgins said.
Potential users include Internet companies that post streaming videos and online game operators that host thousands of players at once.
Setting up servers is a substantial investment. A server costs up to $75,000, and a good-size company might need 100 servers. That could cost more than $75,000 a month to rent from a data center because each server uses 1 megawatt of electricity.
Why so costly? Power. Data centers buy electricity wholesale through the biggest “pipes” available from providers such as the Los Angeles Department of Water and Power to meet the demands of power-hungry servers. They also buy tons of water for the elaborate cooling systems that keep the server rooms from overheating.
Then there are the diesel generators ready to flip on at a moment’s notice to keep the electricity flowing in case of a power outage — for up to 30 days at the Garland Center. There, a team of engineers with a $2-million computer system works round-the-clock to make sure the backup system is functioning properly.
The backups are enormously expensive but provide peace of mind for data center customers, said broker Jason Warner of Jones Lang LaSalle. “More redundancy is the trend.”
Los Angeles County is one of the country’s largest data center hubs, with clusters around downtown Los Angeles and El Segundo. Several transpacific fiber communications lines terminate in the One Wilshire Building downtown, while El Segundo and Redondo Beach have the advantage of being near Los Angeles International Airport and in the territory of Southern California Edison, which sells power to businesses at a lower price than the DWP does.
The late 1990s saw a boom in data center openings, most of them in older buildings in downtown Los Angeles, including the landmark former Terminal Annex post office and a former Robinson’s department store. Many of the centers were built on speculation.
Demand fell off with the Internet bust of the early 2000s, and it took until about 2007 for demand to catch up with supply. Now the rise of gaming, social networking and cloud computing, all of which require banks of servers, is driving the demand for more data centers.
Developers aren’t building on spec this time, Internap’s Higgins said. “Now we have contracts and customers.”