Powered shell data centers represent a flexible and customizable approach to computing infrastructure, allowing tenants to tailor unfinished space to meet their specific technological needs. These facilities offer a scalable foundation for hyperscale and colocation providers to meet the voracious demand for power capacity underpinning critical IT loads, including many emerging artificial intelligence (AI) workloads.

Powered shell data centers are computing spaces that landlords provide with unfinished interiors, basic power, and connectivity infrastructure. Tenants equip these spaces with the necessary operational infrastructure, including cooling, backup generators, and IT systems, to meet their specific needs.

Dgtl Infra explores powered shell data centers, offering insight into a unique infrastructure model that combines customization and control with speed to market. We cover the fundamental aspects, differences from turnkey solutions, and the advantages that these facilities provide. Dgtl Infra identifies who uses these data centers, who provides them, details on lease agreements, pricing, construction costs, and how these factors contribute to the overall valuation of powered shell data centers.

What are Powered Shell Data Centers?

Powered shell data centers are computing facilities that are partially developed by the landlord, who invests the initial capital to construct the exterior building structure and provide access to basic power utilities and fiber optic connectivity. The interior, however, is left unfinished, allowing tenants to customize the space according to their specific requirements. This customization process involves the tenant’s investment in completing the interior setup, which includes installing cooling systems, UPS (Uninterruptible Power Supply) batteries, backup generators, racks, IT equipment, cabling, and storage space, to transform the building into a fully operational data center.

To illustrate, consider a typical data center layout that clearly separates the building’s shell from its interior components. These components comprise electrical and HVAC (Heating, Ventilation, and Air Conditioning) systems, as well as other interior fit-outs necessary for operations.

Data Center Interior and Exterior Layout Showing Powered Building Shell Raised Floor Systems
Source: Digital Realty.

Powered shell data centers vary significantly in size and scope. They can occupy a section or an entire floor of an existing building, or they might comprise a standalone structure dedicated to a single tenant. These buildings are suitable for both new construction and retrofits tailored specifically for data center operations.

Below is an example of the raw interior space of a powered shell data center, which is ready for tenant improvements:

Powered Shell Data Center with Empty Interior Core with Pillars in Space
Source: CyrusOne.

On the smaller scale, powered shell data center commitments often start at a minimum threshold of 1 megawatt (MW) of power capacity or 10,000 square feet of space. However, the use of powered shells is increasingly common among the world’s largest hyperscale tenants, like Amazon Web Services (AWS) and Google, who now require single buildings or entire campuses with power capacities ranging from 100 MW to 1 gigawatt (GW).

This scale is particularly relevant for supporting high-density artificial intelligence (AI) workloads. To ensure reliability for these workloads, powered shell facilities typically have dual electrical feeds sourced from one or two distinct substations, providing a redundant power supply to safeguard against outages.

Development of Powered Shell Data Centers

The powered shell data center strategy utilizes a flexible and scalable development model, providing customers with the ability to rapidly deploy their data center infrastructure as needed. This approach also allows customers to conserve capital until it becomes necessary to invest. Generally, one of the following three strategies is implemented:

  1. Full Construction and Customization: In this approach, providers construct the entire exterior structure of the building but leave the interior unfinished. The building is then customized and fitted out according to the specific requirements of a customer, but only after a lease agreement has been signed
  2. Phased Build-Out Based on Demand: Providers complete the construction of the building shell but only gradually finish the data halls according to the customer demands. This method ensures that only a limited amount of power and space remains unoccupied
  3. Retrofitting Existing Buildings: This strategy involves acquiring buildings that were not originally designed as data centers and converting them into powered shells. In some circumstances, it can provide cost savings over constructing new, purpose-built data centers

Assuming the land has already been acquired, the development timeline for a greenfield data center, including its powered shell, typically follows this sequence:

  • Powered Shell Construction Phase (6 to 12 months):
    • Securing the required entitlements and permits
    • Constructing the core building structure and external walls (the shell)
    • Installing the basic power and connectivity infrastructure
  • Internal Tenant Setup Phase (3 to 6 months):
    • Installing electrical and cooling systems
    • Setting up racks and cabinets
    • Implementing security and fire suppression systems

Overall, the process from starting construction to reaching full operational capacity for a typical greenfield data center project ranges from 9 to 18 months.

Powered Shell vs Turnkey Data Center

A powered shell data center offers a partially completed space equipped with basic infrastructure, such as power and fiber optic connectivity, requiring tenants to finish the interior according to their specific needs. In contrast, a turnkey data center is fully constructed and equipped, ready for immediate occupancy, including all necessary components and systems, such as cooling systems, racks and cabinets, security systems, and fire suppression systems. The table below compares the key features of powered shell and turnkey data centers:

Powered ShellTurnkey Data Center
Building StructurePartially completed space with basic power and connectivity infrastructureFully equipped and operational facility, ready for immediate use
CustomizationHigh flexibility in design and fit-out to meet tenant’s specific needsPredefined design and specifications with limited customization options
Construction Time6 to 12 months1 to 2 years
Fit-Out TimeLonger, due to need for interior and IT setupShorter, as the facility is already set up and operational
Capital ExpendituresInitially higher, due to interior construction and IT setup costsLower upfront, with costs embedded in higher lease rates
Operational ControlHigh, as tenants manage interior and operationsLower, with most control in provider’s hands
MaintenanceTenant handles interior and IT infrastructure maintenanceProvider responsible for all maintenance, including facility and IT equipment
Target UsersSingle tenant; typically cloud or colocation providersAccommodates either single tenant or multiple tenants (colocation); ideal for enterprises
Contract Length10 to 20+ years5 to 10+ years
Lease RatesLower: $10 to $25 per square foot per yearHigher: $100 to $200+ per kW per month

Benefits of Powered Shell Data Centers

Choosing a powered shell data center offers significant advantages for customers, especially when compared to the task of constructing a data center from the ground up.

1500 Space Park Drive Silicon Valley Powered Shell Data Center Example
Source: Digital Core REIT. Powered shell data center located at 1500 Space Park Drive, Santa Clara, California.

The benefits of powered shell data centers include:

1. Customization and Control

Powered shell data centers provide customers with the flexibility to tailor their data center space to meet precise technical specifications and business objectives. This level of customization encompasses various aspects, such as:

  • Flooring: Customers can select the type of flooring that best suits their needs, whether it be a concrete slab for durability or a raised floor for underfloor cooling and cable management
  • Power: Clients can design their power distribution architecture. This includes selecting the appropriate levels of redundancy (e.g., N+1, 2N, or 2N+1) to ensure reliability and uninterrupted service
  • Cooling: The type and configuration of cooling systems can be directly installed by customers, whether they prefer air-based or water-based cooling systems. They also have the opportunity to implement specific airflow management strategies to optimize the cooling efficiency
  • Security: Physical security measures can be customized to precisely fit the customer’s requirements, such as increased perimeter setbacks and environmental buffer zones
  • Structural: Customers can reinforce the building structure to withstand high winds by stipulating the use of durable construction materials, such as reinforced concrete and steel. This can significantly strengthen the building’s walls, roofs, and foundations against natural disasters like hurricanes and tornadoes

2. Speed to Market

Selecting a powered shell data center deployment significantly shortens the timeline to become operational, in comparison to the lengthy process of constructing a data center from the ground up.

Powered shell data centers possess the advantage of having navigated through the regulatory challenges often encountered in new data center development projects. This includes securing entitlements and permits, which are processes that can sometimes extend beyond 12 months. Furthermore, these facilities come pre-equipped with power infrastructure and fiber optics, providing immediate access to critical utilities and connectivity options.

Powered shell data centers are designed with industry best practices in mind, including optimal floor loading capacities, ceiling heights, and power densities (i.e., watts per square foot). This design approach simplifies the interior setup and equipment installation for tenants, enabling faster deployment and operational readiness.

3. Cost Efficiency

Choosing a powered shell data center significantly cuts down on upfront capital expenditures. It eliminates the significant initial outlay needed for land acquisition, the professional fees for securing necessary entitlements and permits, the construction of the building’s shell and core, and the expenses associated with establishing the basic power and connectivity infrastructure. Instead, organizations can lease a powered shell facility, allowing them to concentrate on outfitting the interior with their infrastructure equipment and IT hardware.

Moreover, powered shell data center customers benefit from using modular construction techniques. This approach allows for critical infrastructure components, such as power and cooling systems, to be preassembled and preconfigured offsite. These modules can then be directly installed into the powered shell facility, simplifying and standardizing the setup process. Adopting a modular strategy results in cost reductions by significantly decreasing the amount of construction and setup work required on-site, thereby lowering labor expenses and accelerating the timeline to operational readiness.

Customers of Powered Shell Data Centers

Powered shell data centers attract a diverse array of customers and tenants, including hyperscale companies and large organizations that demand highly specific features, as well as possess the expertise and resources to fit-out and operate their own facilities.

Highpoint Powered Shell Portfolio in Sterling Virginia owned by Blackstone Real Estate Income Trust BREIT
Source: Blackstone Real Estate Income Trust (BREIT). Highpoint Powered Shell Portfolio in Sterling, Virginia.

Notably, these customers include cloud service providers (CSPs), colocation providers, telecommunications carriers, internet service providers (ISPs), cryptocurrency miners, and large enterprises. Prominent examples of customers from these categories are Amazon Web Services (AWS), Google, Equinix, AT&T, Verizon, and Bank of New York (BNY) Mellon.

Powered shell data centers are primarily utilized for critical functions such as hosting the availability zones for cloud service providers, establishing disaster recovery sites, and deploying private clouds.

Due to the substantial initial investment required to customize these facilities, customer turnover at powered shell data centers is rare. The relocation of critical IT infrastructure carries a high cost and significant risk of disruption.

Providers of Powered Shell Data Centers

Powered shell data center providers specialize in the development of large-scale buildings, outfitting them with basic power and connectivity infrastructure to support the operations of customer data centers.

3015 Winona Avenue Los Angeles Powered Shell Data Center Digital Core REIT
Source: Digital Core REIT. Powered shell data center located at 3015 Winona Avenue, Burbank, California.

The following are key players in the industry and significant aspects of their portfolios:

  • Digital Realty delivers powered shell services through its Powered Base Building (PBB) solution, having built and leased millions of square feet of this PBB space. The company also sponsored a Singapore-listed vehicle, known as Digital Core REIT, which owns powered shell data centers in the United States
  • CyrusOne had 1.7 million gross square feet of powered shell space ready for future development and about 505 acres designated for potential data center shell projects
  • COPT Defense Properties owns 30 powered shell data centers – 6 directly and 24 through joint ventures – totaling 5.7 million square feet. These facilities are predominantly leased to Amazon Web Services (AWS) in the Northern Virginia area
  • QTS Data Centers had over 1 million square feet of powered shell capacity, aimed at expanding service delivery within its established markets
  • CoreSite operated 18 powered shell leases, totaling 422,851 net rentable square feet (NRSF), which generated $17.1 million in annualized rent
  • BlackChamber Group is actively planning the development of powered shells on more than 300 acres of land and has invested over $400 million in acquiring these initial parcels across multiple sites in Northern Virginia

Other prominent powered shell data center providers include STACK Infrastructure, Aligned Data Centers, EdgeConneX, Sabey Data Centers, Stream Data Centers, H5 Data Centers, and Prime Data Centers.

Lease Structure of Powered Shell Data Centers

Powered shell data centers cater to tenants who want to manage their own data center operations. Landlords and tenants enter into long-term lease agreements, typically spanning 10 to 20 years, signed before construction begins. These leases feature:

  • Extension Options: Tenants are provided with multiple lease extension opportunities. For instance, a tenant might have the option to extend the lease four separate times, each for an additional five years, potentially extending the total lease duration by up to 20 years
  • Rental Escalators: The lease includes clauses that mandate periodic rent increases, generally between 1.5% and 3% per year

Leases for powered shell data centers are structured on a triple-net basis, which means that tenants need to cover all operating costs, such as property taxes, insurance, and maintenance expenses, alongside their rent.

Phased Leasing Strategy

To optimize capital expenditures and accommodate future growth, leases for powered shell data centers are often arranged in phases. For instance, a tenant might initially lease a portion of a 50-megawatt powered shell, committing to 20 megawatts in two initial phases. In the subsequent years, they have the option to lease additional phases, eventually expanding to use the entire 50 megawatts. This phased approach to leasing allows for a gradual expansion of infrastructure, aligning with the evolving needs of the tenant.

Lease Pricing of Powered Shell Data Centers

The cost of leasing powered shell data centers varies by market, mainly because of differences in power and real estate prices in each location. Here are three examples from the United States, demonstrating that the annual price for triple-net leases of powered shell data centers typically ranges from $10 to $25 per square foot.

1. Amazon Web Services (AWS) – Manassas, Virginia

Amazon Web Services (AWS) is the sole tenant leasing four powered shell data centers located on Bethlehem Road in Manassas, Prince William County, Virginia. These facilities collectively comprise 728,460 square feet of gross leasable area (GLA).

Below is a detailed map of the locations and sizes of these AWS data centers:

  1. DC-18: 8180 Bethlehem Road, with 215,650 square feet of GLA
  2. DC-19: 8200 Bethlehem Road, with 148,580 square feet of GLA
  3. DC-20: 8210 Bethlehem Road, with 215,650 square feet of GLA
  4. DC-23: 8190 Bethlehem Road, with 148,580 square feet of GLA
Amazon Web Services AWS Bethlehem Road in Manassas Virginia

AWS signed a 10-year triple-net lease, initially committing to pay $7.65 million of base rent annually, which equates to a rate of $10.50 per square foot. According to an appraisal conducted on these powered shell properties, the market rent was determined to be $12.00 per square foot.

2. Amazon Web Services (AWS) – Sterling, Virginia

Amazon Web Services (AWS) is the sole tenant leasing two single-story powered shell data center buildings located on West Severn Way in Sterling, Loudoun County, Virginia. These facilities collectively comprise 297,160 square feet of net rentable square feet (NRSF).

Below is an aerial view of the location and size of these AWS data centers:

  1. DC-21: 45295 West Severn Way, with 148,580 square feet of NRSF
  2. DC-22: 45305 West Severn Way, with 148,580 square feet of NRSF
Amazon Web Services AWS West Severn Way Sterling Virginia Aerial View

AWS signed a 12-year triple-net lease, initially committing to pay $4.3 million of base rent annually, which equates to a rate of approximately $14.52 per square foot. The lease also included provisions for 2.25% annual rent increases.

3. NTT – Quincy, Washington

NTT, a subsidiary of the Nippon Telegraph and Telephone Corporation based in Tokyo, Japan, is the sole tenant leasing three powered shell data centers located at 525 D Street Northwest in Quincy, Grant County, Washington. These facilities, comprising a total of 206,688 square feet on an 82.3-acre parcel of land, are situated approximately 120 miles east of downtown Seattle, Washington.

NTT Quincy Grant County Washington Computing Facility Server Rooms Collage of Spaces

NTT signed a 15-year triple-net lease, initially committing to pay $3.8 million of base rent annually, which equates to a rate of $18.39 per square foot. The lease also included provisions for rent escalations of 1.6% per year. According to an appraisal conducted on these powered shell properties, the market rent was determined to be $21.00 per square foot.

Build Costs of Powered Shell Data Centers

Powered shell data centers, including the cost of land, typically represent 10% to 20% of the total cost of a fully-fitted data center. The price of land ranges from $25 to $75 per gross square foot. Additionally, the cost for constructing the building shell ranges from $80 to $200 per square foot. Therefore, the overall expense for building a powered shell data center spans from $105 to $275 per gross square foot.

Atlantic Powered Shell Portfolio in Sterling Virginia owned by Blackstone Real Estate Income Trust BREIT
Source: Blackstone Real Estate Income Trust (BREIT). Atlantic Powered Shell Portfolio in Sterling, Virginia.

Developers investing in these powered shells typically achieve an unlevered yield on cost ranging from 6.5% to 8.0%.

Example Build Costs – Amazon Web Services (AWS)

Amazon Web Services (AWS) operates two single-story powered shell data centers located on West Severn Way in Sterling, Loudoun County, Virginia, comprising a total of 297,160 net rentable square feet (NRSF). The construction of these powered shell facilities cost $76.9 million, which equates to $258.9 per square foot.

Beyond the initial construction, AWS made substantial investments to upgrade these powered shells into fully operational data centers, tailored to their specific needs:

  • AWS invested $386.3 million, equivalent to $1,300 per square foot, in permanent improvements including HVAC systems, fiber connectivity, UPS batteries, and backup generators

In total, AWS invested $594.3 million, equivalent to $2,000 per square foot, to completely transform the powered shells into technologically advanced data center facilities.

This example from AWS shows that the initial powered shell investment accounted for only 13% of AWS’s total data center construction and development costs. Additionally, when considering solely the costs for permanent improvements, the initial powered shell amounted to just 20% of these expenses.

Historically, the sale prices for powered shell data centers have ranged from $150 to $450 per square foot, with average capitalization rates between 4% and 6.5%. These valuations are influenced by several factors, including interest rates, property quality, the location of the property, lease duration, and tenant creditworthiness, among others.

Key buyers of powered shell data centers have included Blackstone Real Estate Income Trust (BREIT), Digital Core REIT, Keppel DC REIT, Mapletree Industrial Trust (MIT), and CapitaLand Ascendas REIT.

For detailed financial metrics on specific powered shell data center transactions in recent years, refer to the Data Centers – Precedent M&A Transactions report by Dgtl Infra.

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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