DECEMBER 2020CIOAPPLICATIONS.COM8ata centers are the backbone that enables modern businesses to thrive. The contracts that govern these assets could make the difference between a business that is bolstered by its mission critical infrastructure and one that is restricted by it. A strong data center contract should promote smart, cost-effective, and flexible solutions that allow your business to thrive--even amid uncertain times.Given the uncertainty in the today's world, there has never been a better time to re-evaluate and re-negotiate existing data center contracts in order to realize savings, enable flexibility, and ensure protection for your business. Market Dynamics Create Opportunity As the colocation business model has grown and evolved, data center operators have become more efficient in all aspects: development, operations, management, etc. The modern data center user benefits directly from these efficiencies in the form of reduced operating costs and rental rates, increased uptime, and enhanced services.Over the last five to seven years, data centers have experienced rental rate compression of approximately 3% to 7% year-over-year thanks to enhanced operating efficiencies, economies of scale, and an influx of capital into the data center sector.Expiring rates from contracts executed five to 10 years ago are well-above market. Allowing contracts to auto-renew Data CenterDALI GREENWOOD, EXECUTIVE DIRECTOR, CUSHMAN & WAKEFIELD'S DATA CENTER ADVISORY GROUPIN MY Viewat standard 3% to 5% escalations means leaving money on the table. While existing data center tenants are not as likely to achieve `new-logo' status pricing on renewals, there are several methods to re-negotiate existing contracts in order to yield impactful savings:1. Taking advantage of more modern pricing structures (i.e. $/kW metered power models vs. pay per circuit or whip, pay per cabinet, pay per cage square foot, all-in bundled pricing, etc....)2. Blend-and-extend (i.e. renewing and extending early in exchange for more favorable rates and terms)3. Right-size the data center footprint for today and tomorrow's needsIn a time when cost-saving initiatives are top-priority for C-level executives, re-negotiating data center contracts is an effective way to realize savings.The Modern Data Center ContractThe data center colocation market looks vastly different today than it did just five years ago. The data center model has changed, and so should your data center contract. Today, data center users, operators, and investors are dramatically more sophisticated. A healthy supply of inventory partnered with commoditized services and offerings is impacting the way users deploy and manage their data center footprints. Contracts: Is it Time for Triage?
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