Data centres, which quietly connect the digital world, are emerging as a darling of commercial real estate in B.C. and beyond.
Although the data centre industry has complex needs and high barriers to entry, experts say it’s only just blooming, and that the industry will grow exponentially with the development and adoption of artificial intelligence, cloud computing and other technologies.
Data centres, initially developed by financial institutions and others to house critical data, offer five key services to a wide range of customers: Space, power, cooling, security and interconnection. Companies used to operate “switch rooms” or “telco rooms” in-house before outsourcing that work.
“It’s really exciting that data centres have now come into the mainstream a bit more,” said Jordan Scott, account director with Denver-based Cologix, Inc., which operates five data centres in and around Vancouver.
“For a while there, it felt like we were kind of just operating behind a curtain or behind the shadows.”
Scott, who is based in Vancouver, said data centres can be thought of as airports. They are the hubs where all the activity happens—where data is processed, transmitted and stored.
“In the airports, it’s a multi-tenant environment. Many, many customers come into our facilities and they co-locate their IT infrastructure within our walls,” he said.
Data centres are buildings for powering and cooling racks of servers and connecting them with fibre-optic and network cabling. Customers generally bring their own equipment, such as servers, switches, cabling, cabinets and power distribution units (PDUs).
Today’s data centres are expected to provide adequate physical space to host client equipment, sufficient electrical power, liquid cooling to create an ideal environment for running equipment, physical security and interconnection with the outside world.
Cologix’s 45-plus data centres in North America operate on a lease model. In addition to certain one-time costs, customers pay monthly lease rates for the square footage they occupy and their power usage, and can choose a two-, five- or 10-year term.
Although real estate is scarce and expensive in Greater Vancouver, urban hubs are needed for proximity to clients, electrical power and connectivity.
“None of our customers are going to want to drive six hours to the middle of nowhere if they have to reboot a server,” Scott said.
Data centres must coordinate with utilities and telecommunications companies to access power and fibre networks, and the barriers to entry are significant due to the amount of time and capital involved.
“You can’t just set up shop overnight,” he said.
AI boosts demand for data centres
“Data centres are ultimately real estate businesses,” said Marc Mondesir, Canadian managing director with California-based Equinix, Inc., which bills itself as the world’s largest data-centre company with 470,000-plus physical interconnections available to clients.
“We are really in the business of providing space and power for our customers, so that they can house the computer equipment that’s required to power the internet.”
Mondesir said his industry is positioned for massive growth as AI, cloud and other technologies—which ultimately runs on computers that in turn run within data centres—evolve.
“What’s at the core of all this infrastructure is the network. The network is at the core of the internet. The network is at the core of AI. The network is at the core of large language models,” he said.
An AI prompt currently requires 10 to 15 times more computing power compared to a keyword search, he said. This places extra demands on the grid, one reason for BC Hydro’s moratorium on Bitcoin mining announced in December 2022.
Crypto volatility aside, Mondesir said there is considerable room for long-term growth in the sector.
“Data centres account for less than one per cent of electricity consumption in this country,” he said. “The U.S. hovers in that three- to four-per-cent mark—these numbers change constantly—and then you’ve got China that’s reported to consume even more electricity than that, so [Canada is] sort of skimming the surface.”
By concentrating providers and equipment under one roof, data centres can unlock synergies for complex computing tasks that require low latency and high security. “The closer that these network nodes are to one another, the better they perform and the more securely they perform,” he said.
As demand for energy grows, so do concerns about the environment. Mondesir said Equinix data centres use 100-per-cent renewable energy and that the company aims to be carbon-neutral by 2030. He also said heat from hardware can be repurposed.
“The Olympic pool in Paris was heated by Equinix data centres,” he said.
Data centre operators face challenges
Wholesale colocation data centres are seen as desirable because infrastructure funds are able to deploy large chunks of capital into real estate assets that produce stable income, said Scott Harper, Toronto-based vice-president with CBRE Limited.
But operating a data centre is no walk in the park, as it brings legal risk, and the technical complexities of data centres make the market difficult to penetrate.
“If there is a problem in a data centre and your client needs an operating platform 24-7 and you cause there to be some type of interruption in that service, the penalties that you’re going to pay for each minute that you’re down are substantial,” he said. “It’s like the difference between owning a retirement home as a real estate play and then owning and operating a hospital that operates 24-7. It’s just much more technical, and you’re having to buy equipment that’s very expensive and back up the data centre twice.”
The hardest thing for an operator right now is aligning a facility to the power supply on a client’s timeline, said Dave Cervantes, CBRE’s Montreal-based executive vice-president.
There is exponential demand for built data-centre space and large quantities of power, he said. The challenge for an operator is getting that space to market with a scarcity of utility power on the grid and significant capital costs to develop the data centre around that power.
Despite these logistical challenges, demand is only beginning to grow, Cervantes said.
“We are continuing to develop at a very, very accelerated pace,” he said.
According to Scott, there are now more eyes and ears focused on the data centre industry in B.C. and elsewhere.
“There’s a ton of investment flowing into this space right now,” he said. “I think it’s really just the beginning of data centres and everything that’s going to be possible.”
