United States: Edge Data Centers: Opportunities For Northeast Real Estate

Overview

As we become more and more dependent on technology for both our business and personal needs, cloud computing has become an increasingly essential function.

Cloud computing supports on-demand access to computer system resources, including data storage and computing functions, without the need for local or direct active management by the user. Cloud computing runs the gamut from the relatively simple storage of data on a third-party server to complex webs or nodes that support streaming services and software-as-a-service (SaaS) applications. Large clouds often have functions distributed over multiple data centers that are situated in strategically valuable geographic locations that further support end users' computing needs.

As cloud computing needs grow, the importance of data centers – including edge data centers (discussed below) – grows too. Data centers provide the essential infrastructure for cloud computing, particularly for business applications. At its core, a data center is a space (which can range from a technology park, building or space within a given building, in suburban or urban areas) used to house computer systems and associated components, including telecommunications and data storage systems. Since information technology (IT) operations are crucial for business continuity, a commercial data center includes redundancy for power supply, data communication connections (i.e., "bandwidth" or "network" services), environmental controls (e.g., air conditioning and fire suppression) and various security protections.

While some businesses are big enough to run their own data centers, most businesses seek out a third-party or "colocation" data center to provide this service. A colocation data center is any large data center facility that rents out rack space to customers for their servers or other network equipment. This service is used by businesses that may not have the resources needed to maintain their own data center. The data center leases out space by the room, cage, rack or cabinet, for customers' servers, for the storage of data. Minimally, the data center offers a controlled environment (e.g., redundant power, HVAC, fire suppression and security); increasingly, data centers also offer various managed services to attract more customers.

In the industry, data centers are categorized by tiers, with Tier 1 being the lowest and Tier 4 being the highest level of services and fault tolerances.

An "edge data center" is a data center with a smaller footprint, that is typically utilized to deliver cached content and cloud computing resources to network devices in a local service area. An edge data center complements and supports edge computing, which is a distributed IT architecture where client data is processed as close to the originating source as possible, to minimize latency. As an example, streaming services that need to reach their subscribers over a wide geography need to supplement their main data centers with edge data centers, so that content can be delivered to the end user with minimal or no hiccups.

The consumption, use, storage and accessing of data is only going to increase. The Northeast region of the United States presents opportunities for owners and operators of data centers, including edge data centers, to capitalize on that trend.

This white paper identifies and discusses: (i) the key characteristics of edge data centers; (ii) key industry uses for edge data centers; (iii) the Northeast-specific opportunities that exist for property owners, investors and entrepreneurs, for the development and operation of edge data centers; and (iv) business law concerns and call-outs applicable to the data center industry in general.

Introduction to Edge Data Centers

Latency¹ has always been an obstacle to the optimal computing experience, as users demand the quickest possible responses to their computing inputs. As demand for big data, wearable technologies, cloud and streaming services and other technological trends continues to grow both in number of devices, volume of transmitted data and number of users, minimizing latency becomes even more paramount. Now, more than ever, end users and devices demand faster, more reliable and more immediate access, from anywhere and at any time, to the applications, services and data housed in data centers. Edge computing and edge data centers present a unique and cost-effective solution to these increasing demands that, with the right plan, may offer interested real estate owners, investors and entrepreneurs an opportunity for enticing financial returns.

An edge data center (EDC) is a smaller data storage facility that is located close to the population that it serves and that delivers cloud computing resources and cached content to end users.² Typically connected to a larger, central data center or multiple EDCs, the EDC processes data as close to its users as possible, allowing organizations to minimize latency and increase user experience.³ EDCs derive their name from the concept of edge computing. Edge computing is the "distributed computing model which takes place near the physical location where data is being collected and analyzed" and which securely processes that data in real time, on site.⁴ IDC, a global market intelligence firm, estimates that by 2025, nearly half of data generated around the globe will utilize edge devices.⁵ Edge computing is likely to revolutionize and transform the way organizations process and analyze data.

Key Characteristics of the Edge Data Center

In achieving the goals of reduced latency and increased end user satisfaction, it is important to understand what defines an EDC. While EDCs are defined somewhat differently amongst different industries, the common characteristics of EDCs include that they are: (i) local to the population they serve; (ii) small; (iii) part of a larger, complex network; and (iv) just as "mission-critical" as their larger, centralized counterparts.⁶

Local:

EDCs are generally defined by their proximity to the population that they serve and are typically found outside of smaller metro areas. Generally, through the repurposing of underused commercial, industrial and office spaces, EDCs serve to bring cloud services and connectivity options to organizations while acting as an intermediary between local and national resources in an effort to reduce network congestion and provide quicker, less expensive and more reliable access to distantly located services.⁷ For example, Netflix may deploy its own hardware by placing an edge device into an EDC in order to provide the benefits of the proximity of its services to its users, i.e., a reduction in core network traffic and latency thereby giving end users a better experience while cutting its own bandwidth costs.⁸ The local proximity of these EDCs effectively addresses the problem of latency by managing the flow of data more efficiently than where all users are connecting to the central core of the network in order to access the data.⁹ Additionally, transmission costs may actually be reduced through the utilization of local centers, which effectively reduces the operator's bottom line costs (which can be an important consideration if operating within a region with higher energy costs).¹⁰ Utilization of local centers by larger companies such as Netflix and Amazon is likely to expand in the years ahead.

Smaller:

EDCs are constructed to be small-to-mid-sized versions of their counterparts within the larger network. These centers maintain all of the same components as the larger, central data centers, but are packed into a much smaller footprint.¹¹ Given their size, EDC infrastructure is often less costly to acquire and maintain than the larger, central data centers.¹² A study conducted by Schenider-Electric found that development of an EDC represents "a 42% savings over a centralized data center."¹³ EDCs can also more easily be adapted and scaled to accommodate growth in IT gear and the number of users and devices as the need for more computing arises.¹⁴ The adaptability of these smaller data centers results in cost savings by allowing operators and organizations to utilize only those services and IT gear that are necessary. Further, building a dedicated data center for an organization's own enterprise may prove too costly for some, particularly if future growth and need cannot be predicted with certainty. EDCs allow these organizations an affordable and adaptable outlet to tap into as their IT infrastructure needs change, thereby increasing the attraction of EDCs.¹⁵

Footnotes

1. See PC Magazine, https://www.pcmag.com/encyclopedia/term/latency (last visited June 15, 2022) ("Latency may refer to the time between a query and the results arriving at the screen or the time between initiating a transaction that modifies one or more databases and its completion.")

2. What is an Edge Data Center?, Sunbird DCIM, https://www.sunbirddcim.com/edge-datacenter#:~:text=Edge%20data%20centers%20are%20smaller,cached%20content%20to%20 end%20users.&text=By%20processing%20data%20and%20services,and%20improve%20 the%20customer%20experience (last visited May 24, 2021).

3. Id.

4. What is Edge and Why is it Important, Stratus, https://www.stratus.com/edgecomputing/?Lead_Source=Search%20Engine%20Marketing&Media=Google%20 Ads&Current_Campaign=20FY-AMER-Edge-PPC-Edge-Computing&utm_ source=google&utm_medium=cpc&utm_campaign=20FY-AMER-Edge-PPCEdge-Computing&gclid=CjwKCAjwtJ2FBhAuEiwAIKu19qzfeBgwSXnD5j9_HvB_ w3QKAr9IShJVz4uZQGxUFP5oJk3dmnR25xoCmoUQAvD_Bw (last visited June 15, 2022)

5. Id.

6. 4 Key Characteristics of Edge Data Centers, Sunbird DCIM, https://www.sunbirddcim.com/blog/4-key-characteristics-edge-data-centers (last visited June 15, 2022).

7. David Chernicoff, Postcards from the Edge, Datacenterdynamics.com (Oct. 26, 2015), https://www.datacenterdynamics.com/en/analysis/postcards-from-the-edge/ (last visited June 15, 2022).

8. Id.

9. Simon Besteman, Why Does 5G Need Edge Computing in a Micro Data Center, Kingston Technology, https://www.kingston.com/unitedstates/us/solutions/servers-data-centers/the-need-for-edge-data-centers (last visited May 24, 2021).

10. Peter Judge, Counting the Costs of the Edge, Data Center Dynamics (Aug. 27, 2019), https://www.datacenterdynamics.com/en/analysis/ counting-cost-edge/ (last visited September 12, 2022).

11. 4 Key Characteristics of Edge Data Centers, supra note 6.

12. Counting the Costs of the Edge, Data Center Dynamics

v13. Victor Avelar, Cost Benefit Analysis of Edge Micro Data Center Deployments, Schneider-Electric, (https://download.schneider-electric. com/files?p_Doc_Ref=SPD_VAVR-9X6SVK_EN#:~:text=The%20capital%20expense%20for%20building,%244.05%20million%20or%20 %244.05%2Fwatt (last visited September 12, 2022).

14. Id.

15. Mary K. Pratt, Top 5 Benefits of Edge Computing for Businesses, Tech Target (November 29, 2021), https://www.techtarget.com/iotagenda/ tip/Top-5-benefits-of-edge-computing-for-businesses (last visited September 12, 2022).