With the market for outsourced data center space on the upswing, 2013 is a good year to bring online a new data center or start a new data center company. This is exactly what founders of a new provider IronGate Data Centers doing. The company is launching two data centers in the Minneapolis metropolitan area over the next several months, hoping to take advantage of growing demand.

Analysts at 451 Group expect demand for data center services to increase this year. There is still a gap between supply and demand, and most providers recently surveyed by the group have indicated that new-business pipelines looked stronger than they did one year ago.

IronGate, funded by a group of private equity investors, is coming to the market at a good time, but also at a place that has not really been famous for being a bustling data center market. Minneapolis is one example of the third-tier data center markets analysts and industry players have been talking about over the past two years, predicting growth.

According to IronGate’s CEO and one of the company’s two founders Rory Johnson, there isn’t much not to like about the Midwestern city. Power is cheap (about US$0.05 per kWh, according to him), climate is mild, and fiber is aplenty.

There is also plenty of demand, he says. IronGate’s primary targets are financial-services firms and government agencies on the East Coast and customers in the healthcare vertical. There are many examples of companies looking to move data center operations to the Midwest, Johnson says, and Minneapolis is a much cheaper alternative to Chicago, the region’s mature data center hub.

Competition is mild but not for long
There aren’t too many data centers in the Minneapolis metro – compared with top-tier markets – but the region is not completely wide open. Companies that offer data center services there include Cologix, XO, tw telecom, zColo, Savvis and VISI, among others. Digital Realty Trust also has a relatively small property there, but one of the largest data centers in the area is by Unisys, former employer of Johnson’s partner and IronGate co-founder and CTO John Botnen.

Botnen, now in his early 50s, worked for Unisys for about 25 years, Johnson says, managing the IT outsourcer’s data centers. After Unisys, Botnen went on to IBM, where he designed data centers in the Midwest for the company’s clients.

Johnson, 34, comes from a commercial-real-estate background. Born and raised in Minneapolis, he spent the past seven years working as a broker for UGL Equis Corp. For several of those seven years he worked on the company’s mission-critical team until he realized that there was an opportunity for a new provider in the Minneapolis market. “This has been an underserved market, and, living in this market, I know a lot of people,” he says. “I have a lot of connections.”

Johnson does not expect to be the only company to be bringing new data center space online in the metro in the near future. “I anticipate that there’ll be some of the bigger players coming to town at some point,” he says. “There’s a lot of land being marketed as data center land.”

Because IronGate is a colocation player, however, he thinks there is plenty of room in the market for IronGate and for a company with a wider service portfolio, such as a managed-services player. “We’re a pure-play colo, and that has some appeal,” he says. “We’re not a managed-services provider.”

Big expansion plans
Johnson expects first of IronGate’s two data centers to come online in April. Called Twin Cities East, it will start with 4MW of critical load, which he anticipates will be expanded to 6MW relatively quickly. The site can expand quite a bit beyond that 6MW, however.

“We can get 35MW or so within nine months, and we do have plans … for a 200,000 sq ft expansion,” the IronGate CEO says. The building on the 19-acre property currently is 85,000 sq ft. This used to be an enterprise data center built for a financial-services firm.

The company already has the first tenant for the building. Johnson could not say who the tenant was, but said the customer was taking 2,000 sq ft of space at first. The company is virtualizing and consolidating its data center footprint, so there is a real opportunity that it will take a lot more space at the Minneapolis site in the near future.

Twin Cities East is reserved for large customers with large data center needs. IronGate is offering private suites with dedicated infrastructure to each prospective tenant. The only things that will be shared are generators, walls and security, Johnson says.

The model is different at the other site, Twin Cities West, located on the far opposite end of the town. The property and the building are much smaller (25,000 sq ft). Its total power capacity is 4MW and IronGate plans to offer both dedicated suites, as well as shared retail colocation space there.

The company’s bread and butter, however, will be the large deployments by large organizations. An optimal deployment would be 1MW on 5,000 sq ft of space, Johnson says.

The financial-services and healthcare demand
In going after financial-services and healthcare firms, IronGate is following market trends. As mentioned above, analysts are forecasting growth in demand for data center space this year, and financial services and healthcare will be the two large verticals to contribute to this growth.

For financial services, upcoming regulatory changes will make outsourced data center facilities more appealing because they will require more data to be stored and tracked, according to 451’s 2013 preview report on the market published in December.

Financial services companies have also been putting off hardware-refresh cycles because of economic uncertainties on both sides of the Atlantic. Now that the Eurozone economic crisis and the US “fiscal cliff” impasse are close to being resolved, these firms are likely to make the needed investments, upgrading hardware and expanding virtualization programs, which will cause them to rethink data center strategies, 451 predicts.

In the healthcare sector, hospitals are looking for ways to maximize the value of their real estate, which means turning more of the space they own into revenue-generating space for patients, Kelly Morgan, a 451 analyst, told DatacenterDynamics in December. This means they are more likely to move their data centers out of hospital buildings and into leased data center facilities.

Healthcare firms of other types are also realizing that they need to focus more on their core competencies, instead of spending resources on data center operations.