MINNEAPOLIS—Although most of the real estate sectors in this economically vibrant city have experienced a great deal of growth in the last several years, until recently the development of data centers has lagged behind other emerging markets. But according to a new report recently issued by JLL, developers have taken notice, and launched several projects that in their first phases will add about 75,000-square-feet of data center space. “Additionally, we expect to see at least one more provider investing in the construction of a new facility by the end of 2nd Qtr. 2014,” the report states.
“Some of the numbers are pretty telling,” Brett Severson, a senior associate with JLL's data center practice group in Minneapolis, tells GlobeSt.com. The Twin Cities had about 432,000-square-feet of multi-tenant data center space, compared to about 721,000-square-feet in the Phoenix area, and 650,000-square-feet in Denver.
“It's kind of surprising,” Severson adds, considering that the Twin Cities had an estimated GDP of $220.2 billion in 2012, compared to $167.9 billion for Denver and $201.7 billion for Phoenix. Furthermore, it hosts 18 Fortune 500 companies, at least double these other markets. “The city was not on the radar for a lot of colocation providers.”
But by mid-2014, the metro area will have 543,000-square-feet of multi-tenant data center space, JLL estimates. In 2013, Colorado-based ViaWest, for example, bought the former Entegris Inc. headquarters in southwest suburban Chaska, and for the first phase has opened a 40,000-square-feet of raised-floor data center space. Also in 2013, Stream Data Centers, a Texas-based developer and operator of wholesale data centers, began developing a 75,675-square-foot facility, also in Chaska. Furthermore, CenturyLink Co. has begun developing a facility in suburban Shakopee that will eventually provide 100,000-square-feet of raised floor space.
The rapid expansion will also push up the vacancy rate in data centers to more than 28%, Serverson says. However, “we're seeing a lot of healthy activity,” and since the new development was a response to real demand “the vacancy rate should tick down pretty quickly.”
“This is a market that in the last six months has totally transformed,” he adds. And with so many developers on the lookout for tenants, they have shown a willingness to sign aggressive deals. “I think it's a great time to be an occupier.”
The state has recently built up a set of tax incentives that make Minnesota an especially appealing location. It now offers sales tax rebates on the purchase of computers and related equipment for a data center, including software and the needed electrical power. In the past, if a company needed about 5,000-square-feet of data center space it would build its own. “Now, you can go into a multi-tenant space and take advantage of all of these savings,” Serverson says. “People are finding out that there are real cost savings, so tenant activity has really picked up.”
The potential for tax savings, coupled with Minneapolis' natural advantages, could transform it into a truly national market for data centers, joining leading regions and cities such as New Jersey, Dallas, Northern Virginia and Chicago. “We're already seeing companies from other markets taking a look at Minnesota,” he adds.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
