Seven years after the dot-bomb flameout dumped millions of square feet of abandoned tech space on the market, the ‘no vacancy’ sign is again being put up in telecom hotels and data centers. That's good news for Digital Realty Trust (NYSE: DLR) and a handful of other real estate providers that have carved a niche providing space for the underserved tech and corporate IT market.

Last year saw the first noteworthy delivery of office and flex telecom hotel/data hosting space in five years, about 119,000 square feet, according to national CoStar property data. That compares with more than 2.6 million square feet delivered in 2001.

This quarter, nearly 400,000 square feet is scheduled for delivery -- the largest block to hit the market since developers delivered 315,000 square feet in second-quarter 2002. Vacancy in the sector also hit a five-year low of 19.3% in last year's fourth quarter.

Demand for data center space should continue to outstrip supply, growing at between 9% and 15% annually for the next five years for a total of 25 million to 31 million square feet, according to estimates by Digital Realty, a San Francisco-based public REIT that in short order, has become the largest landlord of data center and Internet gateway properties since going public in November 2004.

It’s a far cry from 2000-2001, when fallout from the dot-com collapse scorched nearly every property sector, from data centers and headquarters offices to million-square-foot distribution centers for such firms such as eToys, Webvan and -- who could forget -- Whoopi Goldberg’s Flooz.com? The Internet and its high-tech infrastructure spawned spec suburban projects populated by latte-toting whiz kids who enjoyed amenities such as enclosed basketball courts, wet bars and home-theater systems.

Downtown high-rises became wire-and-optic filled telecom hotels as pundits betted on how long it would be before the digital darlings’ bubble burst and the 'high-tech service economy’ went bust.

Six years later, the tech rebound -- or as some worry, the second dot-com bubble -- has unleashed another round of companies eager to cash in on rising demand for places to manage, store and relay ever-swelling waves of data. Data centers are once again enjoying tremendous growth, with Internet traffic now doubling annually thanks to the popularity of bandwidth-sucking social networking sites such as YouTube, MySpace and Facebook.

Fueling the boom is non-tech businesses coping with the legacies of the 9/11 and Hurricane Katrina disasters, which underscored the need for disaster backup and secure data. New regulatory requirements under the Sarbanes-Oxley Act require longer retention of corporate financial records.

Many of those companies are outsourcing their network and web site operations to third-party managed-hosting operations, a sector that grew 35% between 2005 to 2006, to $15 billion in annual revenue, according to Minneapolis-based Tier1 Research. Leadership in the fragmented data center market is 'up for grabs," and the next four years may determine which companies "make it or break it" in the sector, according to Daniel Golding, vice president and senior analyst at Tier1.

Digital Realty has hit the ground running. In just 2 ½ years, the company has amassed 62 properties totaling 11.8 million square feet in 25 U.S. and Western Europe markets.

The REIT’s disciplined yet aggressive acquisition and development strategy has won it kudos from the investment community. Digital Realty buys most of its facilities from distressed tech companies, then installs infrastructure, passing the cost of redundant electrical systems, raised floors and other improvements onto tenants - at costs ranging from $500 to $1,000 per square foot. Tenants so invested are willing to sign long-term leases averaging 12 years, with 3% annual rent bumps.

In addition to cultivating some of the highest rent increases among REITs, Digital Realty has "done something a little different from other real estate companies" - in effect, becoming a tech company itself, CEO Mike Foust told investors at last week’s Credit Suisse real estate investment conference in New York.

"We’ve developed a team of tech professionals, nearly 60 people, who come from IT sales, sales engineering, design construction of professional data centers and technical operations," Foust said. "It’s our secret sauce that we feel creates a significant barrier to entry (for competitors)." Even more important, he said, it allows Digital Realty to work with tenants on facilities solutions "in a very collaborative fashion." The typical transaction "ceases to become a real estate sale very quickly," Foust noted.

"It becomes a mechanical and electrical engineering solution that we’re developing for our customers."

Because of its attractive leases and low operating costs, Digital Realty's returns have averaged 11% annually the past two years, bettering the 10% average for REITs, according to a report last week by Morningstar analyst Heather Smith.

DLR’s largest asset type is Internet gateways that serve as a hub for Internet and data communication between cities. Digital Realty is a dominant player in San Francisco, Los Angeles, and Chicago, among others. Here, however, Morningstar is less bullish -- multiple carriers could consolidate their networks into a single carrier hotel, cutting the need for new space. Analysts are also quick to point out that with so many bytes in the tech basket, any slowdown similar to 2000-01 could have a devastating impact on the company.

Nevertheless, Smith expects rebounding rents, stable cash flows and high returns on investment to work in Digital Realty's favor. Strong fourth-quarter results showed new leases were signed for 111,000 square feet at an annual rate of $47 per square foot -- nearly twice the DLR's average rent on existing leases. Occupancy of DLR's portfolio in the tight market was at 95%.

The pace has only quickened in 2007. On March 29, DLR acquired three single-story buildings totaling 432,000 square feet for $62 million in Ashburn, VA. The deal gives Digital Realty 10 buildings totaling 770,000 square feet in Northern Virginia, one of the top markets for data center space in the country, with strong demand from government, Internet companies and corporate customers, Foust said.

Also in March, the company acquired a leasehold totaling 33,700 square feet of data center space from NYC Connect at 111 8th Ave. in New York City for $24.5 million. The acquisition consists of two 94% leased suites and brings DLR’s presence in the building, one of the world’s premier data centers, to more than 120,000 square feet.

DLR is planning to shift its focus of acquisition of new property to redevelopment of existing assets. With a redevelopment pipeline of 1.5 million square feet, the company expects to unleash 500,000 square feet on the market this year. The latest Northern Virginia deal includes 265,000 square feet that Digital Realty will renovate into highly developed turnkey data center space, Foust said.

Digital Realty is hardly the only company developing or acquiring data center space. The crowded field also includes these players and deals, among others:

• Microsoft Corp., Yahoo Inc. and Intuit Inc. separately announced plans to build new data centers in the small town of Quincy, WA.
• Merkle, a database marketing agency, is moving its corporate headquarters to Columbia, MD, where it's building a five-story 120,000-square-foot Class A building in Columbia Gateway scheduled for completion next year. The first building in Merkle’s office campus will feature office space for up to 550 employees and a 10,000-square-foot data center.
• Base Partners Inc. began the development process for a new 116,000-square-foot data center in El Segundo, CA.
• Savvis Inc. plans to develop four new data centers totaling 180,000 square feet of raised floor space for managed hosting and colocation services in the Atlanta, New York, Washington, D.C., and Santa Clara, CA, markets.
• Foster City, CA-based Equinix, Inc. (Nasdaq: EQIX), announced last month construction of a new 85,000-square-foot Internet business exchange data center in the Washington, D.C. area, adjacent to four other data centers it operates in the area.
• CRG West, a subsidiary of The Carlyle Group, manages seven facilities totaling more than 1.6 million square feet in five major markets, including the famous One Wilshire telecom hotel in downtown Los Angeles.
• Telehouse America, operates four data centers and colocation facilities in New York and Los Angeles, including a 162,000-square-foot flagship center and headquarters in Staten Island, N.Y.
• Terremark Worldwide, Inc. (AMEX: TWW) a Miami company, operates Internet exchanges and IT infrastructure from seven locations in the U.S., Europe and Latin America and from four service aggregation and distribution locations, including its flagship facility, the 750,000-square-foot NAP of the Americas in Miami.
• 365 Main Inc., a privately held firm, started with a data center in San Francisco in 2002 and now operates five facilities nationwide with a sixth facility under development.

Article Source: http://www.costar.com/News/Article.aspx?id=0B0D7D0931EF4B90A5A20C55BA3532D8&ref=100

With all the high-impact marketing and sales strategies available today, one would think the personalized face to face cold-call would be obsolete. Well, Joe Cole disagrees with that theory.

Cole, a commercial real estate broker for Turner Cole Company, prides himself on the amount of time he puts into a regular business day by visiting commercial building sites in the pursuit of finding the right space for his clients. His genuine approach to meet customers gets him past many barriers.

"I'm not the kind of person who waits for the phone to ring," says Cole, a Valrico resident. "I believe the best way to deliver results is to use conventional methods."

These methods include basic legwork by calling on businesses to inquire if there's an interest in selling their property now or in the near future. Cole has a system that he's drawn on a simple orange index card where he tracks all of his daily walk-ins. His goal is to have 2,007 walk-ins by the end of the year.

"I've designed this system to keep me accountable and it's also a proactive approach to finding opportunities," says Cole, who adds that he found a law firm a building in 27 days by knocking on doors. He located the right building for the firm even though it wasn't for sale at the time.

"I had made 457 cold calls in 27 days and now that firm has a first class office site," says Cole. "Where most brokers give up, I just pick up the slack."

Currently, Cole has a leasing project that might interest manufacturing groups or individuals who have outgrown their home office. The office space is located behind Famous Tate's new showroom on E. Brandon Blvd.

"Only 10 units are left and they range from 800 to 1,300 sq. ft.," says Cole. "What's nice is that the units even have roll up doors for rear entrance shipping and receiving. And it's in a perfect location."

To schedule a tour of this property, call Joe Cole at 813-610-5256.

The net absorption for the overall Tampa/St Petersburg office market was positive 155,646 square feet for the first quarter of 2005. This compares to positive 1,576,118 square feet for the fourth quarter of 2004, positive 367,361 square feet for the third quarter of 2004, and positive 350,771 square feet in the second quarter of 2004.

Tallying office building sales of 15,000 square feet or larger, Tampa/St Petersburg office sales figures fell during the fourth quarter 2004 in terms of dollar volume compared to the third quarter of 2004. In the fourth quarter, 14 office transactions closed with a total volume of $72,772,815. The 14 buildings totaled 655,231 square feet and the average price per square foot equated to $111.06 per square foot. That compares to 25 transactions totaling $118,273,100 in the third quarter 2004. The total square footage in the third quarter was 1,313,974 square feet for an average price per square foot of $90.01.