Build-to-suit data centers cater to the diverse and evolving landscape of cloud and enterprise IT needs, where the drive for efficiency, innovation, and strategic positioning dictates a more tailored approach to data management. As businesses push the boundaries of how data centers function, these unique facilities are becoming critical in providing scalability and control over IT infrastructure.

Build-to-suit data centers are custom computing facilities designed to meet a single tenant’s specific needs, including performance, reliability, and security. They cater to strategic corporate objectives like scalability, consolidation, and innovation, with capacities starting at 25 megawatts.

Dgtl Infra explores the concept of build-to-suit data centers, detailing the specific roles and responsibilities of developers and tenants. We highlight the practical benefits of these facilities, such as customization, speed to market, and cost efficiency, with examples from projects in Northern Virginia and Frankfurt, Germany. Continue reading to gain insights into the specific developers and tenants that drive these specialized data center projects forward.

What are Build-to-Suit Data Centers?

Build-to-suit data centers are custom-designed and constructed computing facilities tailored to meet the unique requirements of a single tenant. These purpose-built facilities are developed from the ground up, according to a customer’s specific preferences for location, design, capacity, security, resiliency, power, and cooling, ensuring the IT infrastructure operates at optimal performance.

Construction Site with Cranes Set Against Blue Sky with Workers On Scaffold in Sunlight

Selecting a build-to-suit data center instead of traditional on-premises or colocation facilities can be a strategic decision driven by various corporate needs, such as:

  1. Scaling: Companies experiencing rapid growth, requiring significant computational and data storage capacity
  2. Consolidation: Following a merger or acquisition, an organization might construct a new, custom-designed data center to consolidate its IT infrastructure and reduce costs
  3. Geographic Strategy: Companies may decide to enter new geographic markets or strategically relocate their data centers
  4. Technological Innovation: Organizations looking to support high-density computing, such as artificial intelligence (AI) and machine learning workloads, may construct a new purpose-built data center
  5. Resiliency: Strengthening availability (uptime) as a component of business continuity and disaster recovery strategies
  6. Environmental Sustainability: Companies seeking to minimize their environmental impact might build new data centers that utilize renewable energy sources and employ “free” cooling techniques

Build-to-suit data centers are typically the largest type of wholesale data center, with single facility deployments starting at 25 megawatts of power capacity and often exceeding 100 megawatts.

Responsibilities in Build-to-Suit Data Center Agreements

Build-to-suit data centers are created through a collaborative process between a developer and a customer, with the latter becoming the tenant upon completion. This partnership involves determining the tenant’s specific needs for location, space, power, cooling, security, and IT infrastructure. The developer then designs and constructs a facility that precisely meets these requirements. The financial responsibilities in a build-to-suit arrangement are divided as follows:

  • Developer: Covers the costs of land acquisition, design, and construction. This includes the exterior shell of the facility and essential infrastructure like power supply systems, cooling mechanisms, security systems, and basic networking infrastructure
  • Tenant: Responsible for the internal setup, including racks, cabinets, cages, servers, storage systems, and networking equipment
Responsibilities for Build-to-Suit Data Center Agreements Between a Developer and Tenant that is a Customer

As part of the agreement, the tenant commits to a long-term lease, usually with an initial term of 10 to 15 years, providing the developer with a stable financial return on the significant investment involved in designing and constructing the customized facility. These leases are typically structured on a triple-net basis, meaning the tenant needs to cover all operating costs, such as property taxes, insurance, and maintenance expenses, alongside their rent.

The lease period for build-to-suit data centers commences once construction is completed and the facility is ready for the tenant’s occupation and utilization. In this arrangement, the tenant does not own the data center but can choose to take full control over its operations post-completion. Alternatively, the management of the facility can be outsourced to a third-party data center operator on behalf of the tenant.

Build-to-Suit vs Speculative Data Centers

A build-to-suit data center is specifically designed and constructed to meet the precise needs of a single tenant, who will occupy the entire space. On the other hand, a speculative (spec) data center, which can be for a single or multiple tenants, is developed without a prior commitment from any tenant.

Speculative developments, including some turnkey data centers, are built in anticipation of general market demand. This means the developer takes on both the risk of construction and the challenge of finding tenants post-construction. In contrast, the build-to-suit model involves only the construction risk for the developer, as the tenant’s commitment is secured before construction begins. This makes build-to-suit developments significantly less risky for developers, especially when they involve long-term, triple-net leases with tenants who have strong credit profiles.

Benefits of Build-to-Suit Data Centers

Build-to-suit data centers provide numerous advantages from the perspective of tenants. These are the key benefits:

1. Customization and Control

Tenants have the opportunity to design custom-built data centers to meet their specific technical, operational, and management needs.

Construction Workers In High Visibility Jackets in Discussion Over Plans on Facility Build Site

In collaboration with the data center developer’s design team and third-party equipment suppliers, tenants play a significant role in the design phase, allowing them to specify:

Structural and Architectural Design

  • Structural Elements: Floor load capacities, roof types, and considerations for wind resistance
  • Interior Architecture: Design features like entrances, office space allocation, loading dock placement, and on-site amenities
  • Data Hall: Optimization of space for IT infrastructure with layouts that incorporate efficient hot aisle/cold aisle configurations and containment strategies

Power and Cooling Infrastructure

  • Power Supply: Selection of power suppliers and sources, including options for renewable energy, to meet energy needs and sustainability goals
  • Power Density: Requirements for supporting the IT load, typically expressed in kilowatts (kW) per rack/cabinet or watts per square foot. Designated high-density zones for high-performance computing (HPC) needs
  • Electrical Redundancy: Implementation of specific redundant electrical systems (e.g., N+1, 2N, 2N+1) to align the desire for uninterrupted power with cost considerations and risk tolerance
  • Backup Generators: Use of backup generators for emergencies, with preferences for primary fuel types, such as diesel or natural gas
  • Cooling Solutions: Selection of cooling systems that align with the specific thermal management requirements of the data center. For example, air-based or water-based cooling systems
Google Data Center in The Dalles Oregon showing Pipes to Supply Cold Water for Cooling
Source: Google. Blue pipes supply cold water and red pipes return the warm water back to be cooled.

IT Infrastructure and Connectivity

  • Rack Layouts: Customization of rack and cabinet configurations to support specific power distribution units (PDUs) and cooling approaches, such as in-row cooling or direct liquid cooling
  • Network Connectivity: Specifying preferred carriers, high-bandwidth connections, and redundancy plans for network infrastructure

Security and Safety

  • Security Solutions: Implementation of security solutions including perimeter fencing, secure loading docks, access control systems, and 24/7 surveillance
  • Secure Disk Destruction: Facilities for the secure disposal and destruction of Hard Disk Drives (HDDs) and Solid State Drives (SSDs) to safeguard sensitive data
  • Fire Suppression: Selection of fire suppression systems tailored to the sensitivity of equipment, such as water-based sprinklers, gas-based systems, or inerting agents
Google Data Center in St Ghislain Belgium with Equipment for Fire Suppression System Sprinkler Riser Room
Source: Google. Fire suppression system relies heavily on the sprinkler riser room.

Compliance and Environmental

  • Compliance: Adhering to regulations relevant to the tenant’s business, such as GDPR for data protection or HIPAA for healthcare information
  • Power Usage Effectiveness (PUE): Setting targets for energy efficiency, such as PUE values below 1.2, to minimize the environmental impact and operational costs of the data center

Ultimately, the specific customizations of a build-to-suit data center are determined by its primary function, which must align with the tenant’s IT strategy and business requirements. This function could range from computing, storage, and networking to disaster recovery, application hosting, machine learning, and artificial intelligence (AI), which requires significant graphics processing unit (GPU) resources.

2. Scalability

Build-to-suit data centers allow for scalability in space, power, and cooling capacity. This flexibility enables tenants to efficiently plan for future growth and expand their infrastructure without the need to relocate. By enabling organizations to optimize their initial investment, scalability minimizes financial risk and helps in eliminating unnecessary space and energy consumption.

One of the key strategies for scalability in data centers is adopting a modular design. This approach allows for the data center to expand in a plug-and-play manner, where additional modules (such as power, cooling, or computing units) can be added as needed without disrupting the existing infrastructure.

Regarding the physical addition of space, build-to-suit data centers often offer the option of expandable shells, which provide the flexibility to scale infrastructure in line with IT and computing needs, without the need for immediate full-scale construction. Furthermore, these data centers often utilize a phased development approach, planning for the construction of additional buildings on the same site as needed.

An example of this strategy is demonstrated by GDS Holdings, a data center developer. As shown below, they constructed four build-to-suit data centers on the same campus in Zhangbei, Hebei Province, China, for a cloud computing customer, executing the project in multiple phases: ZB1, ZB2, ZB3, and ZB4.

GDS Phased Development of Build-to-Suit Data Centers in Zhangbei Hebei Province China
Source: GDS Holdings.

3. Cost Efficiency

Build-to-suit data centers allow organizations to avoid the large upfront capital expenditures typically associated with constructing a new data center. Instead, this arrangement shifts such costs to operational expenses through lease agreements, thereby freeing up capital for strategic business initiatives.

Moreover, these data centers typically favor locations in non-Tier 1 markets and suburban areas to reduce costs. These regions are characterized by lower land and construction expenses, especially for large-scale projects, making the investment in a custom-built facility more financially viable. The significant availability of land in these areas facilitates the development of sizable, tailor-made data center campuses with the option for future expansion on the same site.

Notable examples of cost-efficient data center markets geared towards build-to-suit data centers include Hillsboro, Oregon (a suburb of Portland), Elk Grove Village, Illinois (a suburb of Chicago), and suburban areas around London, UK.

4. Speed to Market

Build-to-suit data centers are developed by specialists who bring valuable expertise in various critical areas, including design, planning, power procurement, and maintaining relationships with key industry players such as vendors, consultants, engineering firms, and construction subcontractors. This comprehensive knowledge and experience significantly accelerates the process of bringing a new data center online.

Speed to Market Depicted by a Digital Clock with a Blue Neon Glow that Shows the Time

Developers possess specialized skills in land acquisition, construction, and management of data centers, allowing them to optimize the facility’s space, power, and cooling capabilities. These optimizations are commonly aligned with industry standards for efficiency, including Power Usage Effectiveness (PUE), Water Usage Effectiveness (WUE), and sustainability goals.

Moreover, data center developers often have ready access to undeveloped acreage within their existing land banks across different regions, which streamlines the site selection process for customers. At these sites, developers are more adept at navigating the complexities of securing the necessary entitlements and permits, enabling them to deliver facilities more rapidly for customers.

5. Location Specificity

Build-to-suit data centers allow tenants to select the most optimal location for their facility based on a comprehensive set of criteria. These include the local power generation mix (with a focus on renewable energy sources), the level of connectivity, proximity to their core business operations and customer base, the potential risk of natural disasters, the local tax policy, and regulatory considerations.

This level of specificity in choosing a location enables tenants to enhance their operational performance, ensure compliance with data sovereignty laws, minimize latency for key applications, and effectively plan for disaster recovery and business continuity.

Examples of Build-to-Suit Data Centers

The following examples highlight significant build-to-suit data center projects undertaken by leading companies to meet specific operational requirements:

Google and Iron Mountain in Frankfurt, Germany

In Frankfurt, Germany, Iron Mountain, in partnership with AGC Equity Partners, are developing a build-to-suit data center spanning 280,000 square feet with 27 megawatts of power capacity. This facility, referred to as FRA-1 by Iron Mountain, represents an investment of more than €300 million. The entire facility was pre-leased to Google for an initial lease term of 10 years.

Google and Iron Mountain Frankfurt Germany FRA-1 Development of Build-to-Suit Data Center in Phases
Source: Iron Mountain.

Built to accommodate Google’s hyperscale requirements, the data center features custom design and engineering specifications, including a distributed redundant configuration and a commitment to utilizing 100% renewable energy sources. Additionally, Google secured flexible ramp-up terms for the project’s initial phase, allowing for gradual expansion based on their evolving needs. The development timeline is as follows:

  • Phase 1: Initiated with 9 megawatts of power capacity, completed at the end of 2021
  • Phase 2: An additional 9 megawatts are under development, with stabilization (full operational capability) anticipated by the end of 2024
  • Phase 3: A further 9 megawatts are under development, aiming for stabilization by mid-2027

Once the project achieves full capacity, delivering the planned 18 megawatts of additional power (Phase 2 and 3), the data center will consist of 9 distinct data halls, fully tailored to Google’s stringent specifications.

Digital Realty and Realty Income in Northern Virginia

Digital Realty has partnered with Realty Income to launch a joint venture aimed at developing two build-to-suit data centers in Northern Virginia. These facilities will initially offer a capacity of 16 megawatts, with the option for the customer to expand up to 48 megawatts. The budget for the first phase is set at approximately $400 million, which could double to $800 million should the expansion to 48 megawatts proceed.

Digital Realty and Realty Income Joint Venture Overview in Northern Virginia
Source: Digital Realty.

These data centers are already fully pre-leased to an S&P 100 financial services company rated investment grade, under a 10-year lease with options to extend. The agreement includes an annual rent increase of 2.0% and has a triple-net lease structure.

The lease is anticipated to start in mid-2024, at which time the property is expected to yield an initial cash return of 6.9%. Realty Income estimates that, upon stabilization, the asset will achieve a capitalization rate in the 5% range.

Developers and Tenants of Build-to-Suit Data Centers

Build-to-suit data centers are not suitable for every organization. They often require a longer time to build and are more costly compared to other data center alternatives, such as wholesale colocation.

Inside of a Build-to-Suit Data Center from Digital Realty Located at 1201 Comstock Street in Santa Clara California
Source: Digital Realty. Build-to-suit data center located at 1201 Comstock Street in Santa Clara, California.

Developers

Leading developers specializing in build-to-suit data centers are companies such as Digital Realty, CyrusOne, Iron Mountain, CloudHQ, EdgeConneX, STACK Infrastructure, Switch, COPT Defense Properties, Aligned Data Centers, T5 Data Centers, Green Mountain, Skybox Datacenters/Prologis, Stream Data Centers, H5 Data Centers, and Prime Data Centers.

Tenants

Key tenants of build-to-suit data centers include hyperscale companies like Amazon Web Services (AWS), Google, and Meta Platforms (formerly Facebook), alongside managed service providers (MSPs) such as Rackspace, as well as large corporations and government agencies.

Mary Zhang covers Data Centers for Dgtl Infra, including Equinix (NASDAQ: EQIX), Digital Realty (NYSE: DLR), CyrusOne, CoreSite Realty, QTS Realty, Switch Inc, Iron Mountain (NYSE: IRM), Cyxtera (NASDAQ: CYXT), and many more. Within Data Centers, Mary focuses on the sub-sectors of hyperscale, enterprise / colocation, cloud service providers, and edge computing. Mary has over 5 years of experience in research and writing for Data Centers.

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