Southern California is among the most expensive markets for constructing, commissioning and operating a 5-megawatt enterprise data center over a 10-year period, due to its lack of tax incentives and its steep power and land costs, according to a new report from CBRE Group, Inc.
A rising number of firms have growing requirements for the storage, application and control of their data. While in some parts of the country, companies across many industries, including financial services, healthcare, government and insurance, are opting to build and run their own data centers, in Southern California firms are more than ever better off leasing due to the high operating costs of an enterprise center.
“The decision to lease a data center in Southern California has never been clearer,” said Kristina Metzger, Southern California Market Leader for CBRE’s Data Center Solutions group. “Building and owning in this market simply does not make financial sense.”
Tax Incentives: Data centers are capital intensive and generate significant sales and property tax revenues for state and local jurisdictions. Increasingly, markets that seek to attract data centers are offering significant tax incentives to help reduce the total cost of operations for data centers. Southern California is one of only four of the 30 enterprise markets in CBRE’s study – along with San Francisco, Philadelphia and Northern New Jersey – that does not offer tax incentives to enterprise data centers.
Power: The most expensive power rates were in Boston, Southern California, Cincinnati and Denver. At 19.3 percent, Southern California had the second-highest power costs as a share of the total project cost among the 30 markets in the study. Power costs average 13.2 percent of the total project cost over the life of the project, but vary from 6.5 percent in Quincy, Washington, to 21.3 percent in Boston.
Land Costs: Southern California’s land acquisition costs as a share of total project costs were the highest of the 30 markets in the study, and at 9.9 percent, significantly above the 2.5 percent average share of the total project cost across the 30 markets.
“The ever-increasing need for data exchange, storage and security is broadening demand for data centers in the U.S., but one solution does not fit all,” said Pat Lynch, managing director, Data Center Solutions, CBRE. “Capital and operating costs vary considerably by market, and non-monetary factors such as proximity to a headquarters location, fiber density and environmental and other risk factors can also drive enterprise site selection decisions.”
The CBRE study modeled the cost of constructing, commissioning, and operating a 5-megawatt MW data center for 10 years across 30 U.S. markets, and categorized markets into three cost bands (low, moderate and high) according to analysis of specific cost components including tax incentives, power, construction, land and labor.
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