How to Calculate Operating Costs When Deciding Whether to Lease or Own

Mike Casey, Chief Operating Officer, offers some insight about how to assess the real costs of data center operations and why it makes sense to lease rather than own. Your company has entered a new stage of growth and you’ve outgrown your existing data center…

Now comes the age-old question – lease or own?

When you look at all the factors that make up TCO (Total Cost of Occupancy) in a lease vs own scenario (rent, building costs, operating costs, PUE, weighted cost of capital, etc.), chances are that leasing in a multi-tenant data center will save you money. Here’s an example of using just one of the TCO variables, operating costs.

Staffing – Probably your biggest expense is personnel. Think about the cost of manning a business-critical data center to ensure 24×7 operation. A minimal 24×7 facility management staff consists of 6 (six) full-time dedicated technicians. This gives you 2 technicians on site during normal business hours and 1 technician on site after hours. When you consider labor burden costs such as insurance, 401k/retirement, training, paid time off, etc., the facility management staffing costs alone can be $750k-$1M.

As part of your staffing costs, you also have to include staff for security which drives up the cost even more.

In a leased data center environment, you get to share these staffing costs with all the data center tenants, so you are paying a fraction of the personnel costs (without the liability).

Real Estate Taxes – Your next largest operating expense is often property tax. In leased space, you pay for your proportionate share of property taxes. Usually this is based on the amount of kW leased. In an owned facility, you pay for 100% of the real estate taxes.

The required usable land and building footprint is inherently less efficient with smaller buildings. This means you have a disproportionate amount of land and building area compared to a larger, multi-tenant facility resulting in a larger tax bill. In addition, with a smaller single user building, you are less likely to secure property tax incentives.

As a result, you will pay more in real estate taxes in a smaller, owned building compared to leasing space in a larger wholesale facility.

Preventative Maintenance Agreements – In a larger, multi-tenant data center, the preventative maintenance agreements in terms of $/kW decreases because of economies of scale. The tenant pays for their proportionate share of the preventative maintenance costs making it less expensive to lease in a larger facility.

Soft Services – Building expenses also include all those “soft” services, such as landscaping, housekeeping, etc. All of which will be less expensive in a shared facility.

You get the idea.

Sharing operating expenses in a build-to-suit, leased data center is going to save you money. The savings vary based on your requirements. Here’s a typical example. We recently executed a lease for ~500kW with an average operating cost of $30 per kW per month. If the tenant were to build their own in-house data center to the same specifications, their operating costs would be over $100 per kW per month. That’s more than three times the cost of leasing from T5 Data Centers.

So as they say, do the math, but be sure to look beyond the cost of running the hardware and software. Once you look at the big picture, you’ll see that you can substantially reduce your data center TCO by leasing, and you don’t have to sacrifice reliability, control, or security.