In a newly released report, CBRE Data Center Solutions analyzed a typical 1-megawatt (MW), or 1,000-kilowatt (kW), data center lease over a seven-year term across 23 key markets in the U.S. Based on total project costs, the study determined that Atlanta, Colorado Springs, Northern Virginia, Portland and Seattle are the most cost-effective options for leasing data center space. The least cost-effective markets were Boston, Des Moines, Kansas City, Northern Florida and Omaha, with the highest total project costs. Colocation lease rates per kW are heavily driven by both market competitiveness and maturity. Accordingly, lease rates in a less mature and competitive market like Des Moines are higher than in a more competitive and mature market like Silicon Valley.

“As the data center industry expands, IT and real estate executives are grappling with complex site selection decisions, including whether to lease or own a facility. For occupiers seeking to preserve capital or lease a data center, the selection process needs to carefully consider the primary cost variables of rent, power and taxes, and recognize the variability that exists from market to market,” said Pat Lynch, Managing Director, Data Center Solutions, CBRE. “The site selection process for an owned data center will hinge more on the relative costs of power, real and personal property taxes, sales taxes, available incentives, and construction costs.”

Wholesale data center inventory is steadily increasing across primary and secondary markets in the U.S. to keep up with the growing demand. As of Q2 2014, total inventory in primary* markets reached 1,140.9 MW, with another 107.3 MW under construction. Between Q2 2013 and Q2 2014, primary market inventory measured in MW increased 31.3 percent.

Other highlights of the report include:

  • Despite healthy incentive packages, high lease rates in Kansas City, Des Moines and Omaha of 120 percent to 140 percent above the average proved difficult to overcome in the highly competitive colocation marketplace.
  • The average total cost for a 1-MW lease across the 23 key markets over a seven-year lease term is $45.9 million.
  • The average first-year rent among the 23 markets is $158 per kW per month, or $1.9 million per year. The average cost of power among the 23 markets is $0.076 per kWh, or $798,000 per year. The average total tax payment, including sales/use tax and likely incentives, is about $1.9 million over the life of the project.
  • While the highest rents were typically found in the Central and Eastern U.S. regions, several of the Central region’s less mature markets offered the greatest potential tax incentive offset. Incentive savings represented more than a 10 percent reduction in the total rent payment over the life of the lease or an average of just over $2.0 million in nine markets: Atlanta, Dallas, Houston, Kansas City, Northern Virginia, Omaha, Phoenix, Seattle and St. Louis.
  • No tax incentives were available for leased data centers in nine of the 23 markets, including both California markets and several markets in the East.