Strong Demand for Powered Shell Space

Are more large companies investing in finishing out their own data center space? For the second consecutive quarter, leasing of "powered shell" space comprised the largest portion of new leasing in the data center portfolio of Digital Realty Trust, the world's largest landlord of data center and carrier hotel properties. That marks a shift from trends seen in 2008 through 2010, when most of Digital Realty's tenants were opting for its plug-n-play Turn-Key Datacenter product.

Digital Realty said Monday that it leased 186,000 square feet of  Powered Base Building (PBB) space in the first quarter of 2011, compared to 57,000 square feet of Turn-Key Datacenter space. In other transactions, the company signed master leases at two Midwest properties in which separate managed services/colocation providers assumed the management of approximately 34,000 square feet of colocation space.

Digital Realty also saw reported a surge in leasing of its Powered Base Building product in the fourth quarter of 2010, when it leased 234,000 square feet of PBB space and 89,000 square feet of Turn-Key space.

Power Base vs. Turn-Key

Powered Base Building (PBB) is undeveloped space with the power and fiber connectivity already in place. This allows for easy expansion for companies with the capital to build the data center infrastructure themselves. Turn-key Datacenter program offers customers finished ”plug and play” raised-floor data center space, which shifts the data center development costs from the tenant to the landlord, and allows for much quicker deployment than if the customer built a new facility on its own.

"We continued to see strong demand for our Powered Base Building solution from the managed services and cloud computing providers that support the corporate enterprise market," said Michael Foust, Chief Executive Officer of Digital Realty Trust. "Our flexible Turn-Key Datacenter solution also saw strong demand with leases signed during the quarter with enterprise customers from industry sectors ranging from hospitality and healthcare to online marketing, financial services and managed services."

Why the Shift?

Why the sudden burst of interest in powered shell space?  One possible explanation is easier access to capital. A key selling point of finished wholesale space is that it allows companies to deploy new raised-floor space with a minimal outlay of cash up-front. In the wake of the 2008 financial crisis, that was a particularly attractive option. As it becomes easier to borrow, companies may be more comfortable investing in data center build-outs.

There could be a simpler explanation: Big companies that have always preferred to build out their own environments in power shell space have shifted into expansion mode, and are leasing space in anticipation of future growth.