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How do Colocation Data Centers determine lease rates for Clients?
What are the metrics by which today's colocation data center providers determine client lease rates? Do they charge by the cabinet / square foot; by the Kilowatt hours / density; or is it a combination? How do they account for cooling loads across various densities in the white space?
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4 Answers
Rob,
The rates are generally determined in three separate categories of floor space, power, and network.
Floor space can be sold anywhere from per RU of space, to 1/3, 1/2, or full cabinet. The floor space can scale up to private suites or cages that are several thousand square feet. The price of this would normally be determined by the cost per Sq/Ft of the building plus improvements plus provided equipment then divided by your desired ROI.
Power is generally sold per peak amperage use or by the RDIC rating of the dedicated circuit. The cost of cooling should be accounted for in the price of the power. Power cost would be determined by knowing your PUE to determine how much power it takes to cool 1KW of power to the rack. You would then calculate your per KW or per Amp or XX voltage of power by taking the cost of utility power, your 2nd power source, UPS system, and distribution systems. With this number you would add the cost for the customer circuit and the power it takes to cool that and that would be your power cost.
Network is very different from one provider to another. The way the cost is determined can very greatly depending on the core network equipment and over subscription level of bandwidth.
To put a more fine answer on your power question: The cooling should be charged for on the power. Every Datacenter should know their maximum KW per Sq/Ft of space that works with their existing cooling operations. If a customer was requesting higher densities than your cooling accounted for the easiest manor to account for this would be to add Sq/Ft to their space till it would balance out the KW per Sq/Ft that can be cooled.
Steve's answer is very good.
The only thing I would add is that some data centers will sell Metered Power by which you are charged only for the actual power that you use.
I would add this to the calculations of cost:
SLA levels will, in some co-lo's, add to the overall cost. For example, Co-lo's that have oversubscribed bandwidth will add a charge for 'guaranteed' bandwidth. Similarly, if the package offers support, the various support levels carry different support charges.
Wholesale Colocation like other forms of real estate is simple a financial vehicle. The developer borrows money and loans it to his Tenants at a higher interest rate. An in lieu of cash proceeds from the loan, the Tenant gets use of the facility and all of the money invested in it. The Tenant pays pack the loan via the lease rate. So the base lease rate is set by the developer’s “minimum return on equity”.
Retail Colocation is the same model as wholesale but is available in smaller increments and often with a whole slate of services. In fact, the services can run as much if not more then the space, power and cooling.
Typically real estate is leased in terms of $/sf/mo or $/sf/yr. This is because most cost items are directly related to the square feet of building. So it just makes sense to quote it this way. In the case of Colocation, roughly 90% of the cost is related to how much power capacity that the developer builds. So $/sf falls out of favor and $/kW of committed capacity is the cost/unit meaasure used.
On wholesale deals, energy consumption is typically metered. Cooling is proportional to air conditioning consumption. Most wholesale providers quote a cooling factor. Some call it a PUE. It’s a number that is determined by the landlord. In general it follows the idea and concept of PUE . However, there is no single universally accepted PUE computation and the landlord is free to calculate it any way he wants. It may include management expenses, profit and other cost items.
Finally, the quoted rate depends on market conditions (supply and demand) and Landlord’s motivations. Sometimes there are great deals to be found when you know what the Landlord is trying to accomplish. For example, he might be looking to sell the facility, refinance it, or obtain financing to kick off a new colo facility in another market. All of these things play into the “negotiated rate”.
To get the best rate you 1) need to know what you want to buy, 2) know the general market, 3) know more specifically the developers and what’s going on with them, 4) know where developers make their money (i.e. Do you want floor mats with that?) and 5) know how to negotiate the deal. It helps to have someone on your team that does this for a living.
Finally keep in mind that not all colocation facilities are created equal - you have to kick the tires a bit.
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