Consider the Cloud: How Expanding Data Storage Options Are Driving Real Estate Decisions

by | 26 September 2017

In today’s business environment, it’s no longer a question of whether to adopt a cloud solution for data storage — where data is stored on remote servers accessed via the internet — but how to adopt a cloud solution as part of a broader data-storage strategy.

Today, 70% of all organizations have at least one application stored in the cloud, and projections suggest that the average company will have less than half of their applications and platforms in on-premise systems by 2018.

“The rise of the cloud has ushered in a new era of options that help businesses run smarter and leaner. But it has also made the decision-making process more complex,” said Dan Peterson, a member of the steering committee of Colliers International’s Technology Solutions Group. “Determining what type and how much data should live in the private and public clouds, on premises and in third-party environments can be complicated in light of the expanding spectrum of options available.”

In making this decision, most companies today are arriving at some type of hybrid blend of data storage services. But that’s just the beginning of determining the real estate implications.

“Given the wide variety of data storage models that have emerged, many companies need a new take on their real estate portfolio strategies. They need an approach that reflects where their business and technology needs are going and both the physical footprint and the network of connectivity necessary to support true alignment,” said Chris Zlocki, head of innovation for Colliers’ Corporate Solutions group.

THREE CRITICAL QUESTIONS

Defining that portfolio strategy with respect to data center real estate is a complex process. Among many others, there are three key questions for businesses to evaluate:

  • What critical applications do you have that require intimate interaction on an ongoing basis?
  • What back-end, non-essential applications do you have that might be more cost-efficient to host in the cloud?
  • Are there certain compliance requirements with your data that a third-party provider might be best equipped to manage?

Once a company determines where in the hybrid spectrum its data needs to sit, it’s a matter of deciding whether owning a data center or leasing — either a full building or space within a co-location data center — makes the most sense. In this decision, a wide variety of business and financial requirements come into play.

One new factor in this decision is the set of rules from the Financial Accounting Standards Board that will roll out in early 2019. These rules will require companies to report operating leases on their balance sheets, including data center real estate and equipment leases longer than one year. Once leasing becomes part of the balance sheet, many businesses will likely take a fresh look at buying versus leasing data center space.

“Businesses are being provided with real estate opportunities that didn’t exist three to five years ago to shift from a very capital-intensive model to a much more agile model. Companies now have the ability to leverage flexible solutions — whether that’s moving traditional office space to a co-working model or critical data centers taking advantage of co-locating options. Like so many other services, companies can now purchase storage space on-demand to meet their needs to scale up, down and sideways rather than committing long-term capital in a way that limits flexibility,” said Zlocki.

The issue of when to examine data center real estate needs is a crucial one that many businesses could approach more strategically. It’s common for an office relocation or another real estate event to activate the analysis of IT requirements and how to use on-premise space and off-site spaces. But these events shouldn’t be the only triggers, especially considering that the lifecycle of IT infrastructure is often much shorter than the typical real estate life cycle.

WHAT LIES AHEAD FOR THE DATA CENTER

“As the internet permeates every aspect of our lives, the way we define a data center will change. One day soon, it will be just as common to talk about a tiny data center in the vending machine as a mega-center with 100,000 servers in a corn field,” said Peterson.

The fact that the world’s data needs seem unlikely to stop growing anytime soon points to long-term opportunities for data center users, owners and investors alike. And the anticipated continued rise in cloud adoption is not expected to lessen the demand for data centers — but it will likely continue to shift the tenant mix.

Where enterprise end-users used to be the primary tenant type, the average data center owner’s tenant base is now made up of end-users and third-party cloud solution providers that serve end-users. As a result, some data center owners will continue to see new opportunities to meet the increasing demand for scale and geographical reach presented by third-party providers.

“Data centers can be expensive properties to build and maintain, but they are becoming more critical to our economy on a daily basis,” said Peterson. “The more data we generate, the more we move into artificial intelligence-powered applications and the more we distribute content to the edge, the more we need purpose-built data storage buildings. Like every sector, there will be ups and downs but we see long-term stability and appealing opportunities in this area.”

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