The New Vocabulary of Commercial Real Estate

Trends in commercial real estate change faster than the weather on the coast of Scotland. Blink and suddenly you’re stunned that dark clouds have gathered and a fierce wind is blowing in from the Atlantic. Every reader of this magazine knows that property owners and brokers have had to become experts in telecom connectivity over the past decade, as corporate clients ask as much about things like fiber connectivity as they do about marble bathrooms and on-prem gyms and other amenities.

Words like “bandwidth” and “redundancy” have become central to every building tour and commercial lease discussion in ways that were relevant to only a small fraction of tenants in the past. It used to be only select financial companies in New York and Chicago or tech companies in Silicon Valley that asked a million questions about those building specs. But today, everyone does. Increasingly, very few deals get done without a corporate tenants’ CIO and IT team being deeply involved in kicking the tires of a property and asking a lot of technical questions about its connectivity.

Those tires are about to get kicked a whole lot harder, though, and it’s vitally important for everyone involved in commercial real estate to understand what companies will increasingly be expecting from corporate space. Simply put, the vocabulary of commercial real estate is changing, and “latency” is the new “location.”

Some of you are already hearing that word bubble up in conversations with tenants. For the rest of you, this term may be brand new. In the simplest terms, it refers to the delays in sending and receiving data to and from data centers, clients, partners and anyone else a company is working with. In the past, the companies that cared the most about latency were companies in the financial services field, particularly trading companies for whom delays of micro-seconds meant they were left out in the cold on real-time trading of stocks, bonds and commodities like corn and pork bellies.

To them, any delays in receiving information and sending out buy/sell orders was a direct hit to their profitability. As many of you know, that’s why those companies often cared first and foremost about fiber accessibility and low-latency connectivity to trading floors in Manhattan and the Chicago Loop. They cared about that more than gorgeous views. More than executive bathrooms. More than adequate parking. More than anything. It was the difference between profit and loss to them. It was as important as life and death.

That micro-minority of tenants is turning into a macro-majority today. Every company now is dependent on connectivity for all of their essential operations, no matter if you trade stocks or sell macramé hanging plant holders. That is why latency needs to be part of every commercial real estate professional’s vocabulary. More specifically, the term “zero latency” needs to be part of your vocabulary.

Companies that needed fast connectivity with minimal data transfer delays were content with direct fiber connectivity in the past. If underground fiber was immediately available outside the building – or if a fiber extension could be dug up to the doorstep to link to the nearest fiber loop – tenants were happy. That delivered low latency. But even low latency is not enough for some of the IT applications that companies are starting to deploy.

That means that fiber is not enough. Immediate access to fiber can still mean unsatisfactory latency if the company’s data center is far away. With critical data being shuttled back and forth across multiple hops and relays and gateways, each of which create micro-delays that add up to significant latency. That physical distance and “data distance” between your building and data center infrastructure can be the difference between your property being highly-desirable and a non-option. Increasingly, latency will be what these tenant deals hinge on.

That is why fiber connectivity is not enough. Proximity to edge computing is what tenants are going to care about, because that is what can reduce latency down all the way to zero. Zero latency used to be a theoretical concept, but technologies have advanced to the point where it is a practical reality for any company that has immediate access to a micro data center that eliminates the need to send data back and forth across all those hops, relays and gateways that slow everything down.

When most people envision a data center, they think of the ones that large companies like Google and Microsoft and IBM operate: enormous mega-data centers that are monolithic structures bigger than football stadiums, housing everyone’s social media accounts and cat videos. Those are often located in far-off places where electricity is inexpensive and land is cheap. Edge computing involves a very different kind of data centers: micro facilities the size of a shipping container that are placed very close to the companies that need them. They aren’t across the country. They are around the corner soon.

I say “soon” because the onus is on telecommunications companies and other companies involved in IT infrastructure to move beyond the testing phase and deploy micro data centers at scale so that more properties have edge computing facilities right around the corner. “Zero latency” is increasingly part of prospective tenants’ vocabulary, which means it needs to become part of your vocabulary. But even more importantly, it needs to be a central part of the plan your connectivity partners have for delivering connectivity services to your properties. Fiber access will soon no longer be enough. Edge computing is going to be the critical factor in ensuring that your property continues to be desirable in a marketplace where tenants want to set the bar as low as possible: as low as zero where latency is concerned.

 

About the Author:

Greg Pettine heads up business development for EdgeMicro, a company launched in 2017 which operates in the “edge” colocation space.

 

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