Datacenter space is getting pricier

The story: Space in multitenant datacenters is already getting more expensive. And with the financial/credit crisis making it difficult to finance datacenter construction, we’re heading into a period of rising prices as demand outstrips supply.

To be sure, the financial crisis will slow demand. But the pipeline of datacenter space is already running dry, as demand increased by about 14 percent over the last year while supply was up just 6 percent. Not surprisingly, the lag in supply has already pushed up prices; in some markets costs have more than doubled, says 451 Group analyst Dan Golding.

[ See how “datacenters in a box” may help avoid the high cost of renting datacenter space. ]

In normal times, the solution to a demand crunch is an uptick in supply. But that’s not going to happen in the next few years. Datacenters are very expensive, costing about $1,300 a square foot to build and provision. But with financing difficult, if not impossible to obtain, new projects aren’t entering the pipeline.

Even when credit eases, an increase in supply will take some time since datacenters take approximately 18 months to build, says Golding.

Although some markets are already feeling the crunch, global datacenter utilization stands at 65 percent. At 70 percent, finding suitable space gets somewhat difficult and prices begin to creep up, according to a report by Golding and fellow analysts Jeff Paschke and Jason Schafer. At 80 percent utilization, they write, “pricing insanity is encountered. That’s not just a theoretical point. A sobering example is London, where prices have soared sixfold, and are now the highest in the world.”

It’s not just London. In November, DuPont Fabros suspended development of datacenter facilities in Ashburn, Va., and Piscataway, N.J., as the company seeks additional financing to fund development of these sites. The company was planning to raise $150 million in loans but found the terms too difficult to accept.

The bottom line: It’s possible that the shortage of supply could be partially offset by the use of so-called datacenters in a box, now offered by Dell, Sun Microsystems, and others. Cloud computing could also take up some of the slack. But neither will replace the industrial-strength co-location facilities. Expect to pay more for the next few years.

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