Thinking About Thinking

The Most Expensive Commercial Real Estate In The World Is A Place For Computers, Not People

Posted in Pop Culture, Technology by larrycheng on September 16, 2009

These days, you can get great office space in the heart of Boston’s financial district for $40–$60/square foot (maybe cheaper).  If you asked most people where the most expensive commercial real estate is – they might say the West End in London, Central Business District in Hong Kong or Mumbai, or possibly overlooking Central Park in Manhattan.  Rents in these areas can be $200–$400 per square foot.  If you asked people where the most expensive retail space is – they might say Champs-Elysees in Paris, Causeway Bay in Hong Kong or Fifth Avenue in New York City.  Rents on those streets can be $1,000–$1,500 per square foot.  Even those exorbitant rents don’t come close to what *may* very well be the most expensive commercial rental space in the world at $4,000 per square foot.  And this space is not even for people, it’s for computers.

The most expensive commercial real estate in the world may just be an anonymous data center in Chicago which holds the computers powering the big securities exchanges like the Chicago Board Options Exchange (CBOE).  Who’s paying for this real estate?  Not the exchanges themselves.  But the new power brokers on Wall Street – high frequency traders.  These traders make a living on computer generated algorithms that fire thousands of trades per millisecond capitalizing on arbitrage opportunities as a security plods its way from being priced at $25.01 to $25.02.  That price change takes time, and in that time, high frequency traders are making a living – and some say a killing. 

Part of the secret sauce of high frequency traders is leveraging the latest and greatest technologies to execute these trades with the utmost intelligence and speed.  But, no matter how intelligent that trade is – it still needs to travel from one computer to another to be executed.  That trade needs to be communicated.  And in the game of electronic communication, nothing can quite take the place of pure proximity between origin server and destination server.  When billions are made on millisecond-level trade throughput, having your server right next to the server that executes your trade is worth a lot more than $4,000 per square foot, it’s priceless. 

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