Prices for Cabinets, Space Trending Higher

Prices are trending higher for finished data center space and server cabinets, according to executives at the leading public companies in the sector, who expect these trends to continue as demand remains strong. The cost of converting unfinished "shell" space into raised-floor technical space is also on the rise, they said.

The findings are no surprise, given the strong demand for data center services, as well as tight supply for space in several major markets. The latest information, compiled from third-quarter conference calls from Digital Realty Trust (DLR) and Equinix Inc. (EQIX) represents a view from the top of the market, and pricing will likely differ between providers and geographic markets. But given the breadth of their operations, these two companies offer insight into pricing trends for premium data center equipment space.

Data Center Space: "We're seeing a significant uptick in rents," said Michael Foust, CEO of Digital Realty. "Rents are up easily 15 to 20 percent this year alone, if not more." In the quarter that ended Sept. 30, Digital Realty commenced leases for 114,000 square feet of finished data center space at an average price of $97 a square foot, while 60,000 square feet of unfinished space was leased at $30 per square foot. New leases that were signed in the quarter (which reflect more current pricing than commenced leases) averaged $109 a square foot for finished space, according to DLR.

"Rents on our turnkey space have typically been averaging $100 to $120 a foot, and often higher," said Foust. There's much stronger demand for for finished "turnkey" space than shell space, which along with pricing trends has influenced Digital Realty's strategy for leasing the 1.2 million square feet of unfinished expansion space in its portfolio. "We're seeing more customers looking for turnkey solutions, so we expect 40 to 50 of that space will be built out by us," said Foust.

Improvement Costs: Building out that space will not be cheap, according to Equinix, which is in the process of developing huge new data centers in Ashburn, Va., Chicago, and Secaucus, N.J. Several years ago, improvement costs for premium data center space ranged from $500 and $600 a square foot, according to Equinix CEO Peter Van Camp. ""What's happening now is that we're seeing costs close to $800 per square foot, and even $1,000 on the colo floor. That's a radical change in the building of a data center."

Cabinet Pricing: Pricing for the 16,200 customer cabinets in Equinix data centers in the U.S. and Asia averaged $1,475 per cabinet in the third quarter, up 2.3 percent from $1,442 in the previous quarter. The company said it expected to see that average exceed $1,500 in the fourth quarter. Cabinets in the U.S. fetched the highest price, averaging $1,559, up from $1,543 in the previous quarter.

Van Camp said Equinix has been implenting "modest" price increases as existing customers renew or extend their contracts. "What's starting to show up (in the rising average) is that new business deals are priced significantly more" than existing cabinets, said Van Camp. "The sales force is living under a new rate schedule."