The clouds are shifting — and the future of data center real estate is looking a lot more global and automated. The shift to global data center footprints and artificial intelligence (AI) is helping the data center industry become more efficient and keep up with the surging amount of data being generated by corporations, entertainment companies and personal devices.
Combined with the growth of cloud computing, these trends mean that the industry is facing important questions about cybersecurity, data sovereignty and digital content consumption. According to the latest JLL Data Center Outlook, the industry is changing in four important ways.
- Absorption of data center capacity is normalizing, but it won’t stay quiet for long.
Coming off a wild year for data center leasing in 2016, the first half of 2017 saw reserved absorption as users continued to work through capacity they picked up in 2016. Nevertheless, many markets showed significant activity, such as Northern Virginia, Dallas-Fort Worth, Northern California, Atlanta and Montreal. JLL’s report includes detailed market reports for these and other North American markets.
In Northern Virginia, for example, the supply of data center space continues to grow at a historically rapid clip. More than 860,000 square feet of data center space is under construction, with 1.25 million square feet planned. The major data center REITs are all developing new centers in the region, as are the top cloud service providers.
Canadian market activity was particularly strong in the first half of 2017, capturing 34.7 megawatts (MW) of absorption — measured in watts rather than square feet because the availability of low-cost electrical power is a key location driver. That level of absorption is nearly 10 MW more than in the first half of 2016.
Activity was focused in the Greater Toronto Area and Montreal. Big-name cloud service providers targeted Montreal in the first half of 2017, where absorption more than doubled thanks to optimal pricing, timing and power rates.
- The cloud is now headed to global markets.
In 2016, cloud demand drove incredible absorption. Today, large-scale cloud services providers are looking overseas to fill out their global footprints. This shift in focus is driven in part by data sovereignty laws enacted by some countries that require data to be housed in data centers within its country of origin.
- Record-breaking M&A activity is continuing.
Several massive acquisitions and buyouts were announced within the data center industry in 2017, setting pace for a record-breaking year. Halfway through 2017, the industry had already passed $10 billion in the value of mergers and acquisitions (M&A), a dramatic increase over the $1.7 billion reached in 2016. Why the leap? A series of mega-mergers, such as Digital Realty’s $7.6 billion acquisition of DuPont Fabros; an investor group’s $2.8 billion acquisition of CenturyLink’s assets; Peak 10’s $1.7 billion acquisition of ViaWest; and Digital Bridge’s $1 billion acquisition of Vantage.
- Data center users are craving more power, investing in AI and going global.
According to the panel of heavyweight data center users interviewed for JLL’s report, top-of-mind issues include the growing need for data security, the use of AI and globalization. As one executive from a technology and big data company observed, “From a data center and security viewpoint, we’ve been deploying extra racks for all the new security appliances that continue to grow the network footprint. The additional security measures have been adding to build times for bringing new systems online. Capacity upgrades and planning have become even more challenging as the wait time now includes security devices in addition to circuit upgrades.”
The shifting cloud dynamics will continue to shape the future of the data center industry — but another trend is also emerging when it comes to user investment planning. As one corporate IT executive predicted, “The most impactful technology changes [in our data center portfolio] will come about from larger investments in AI. AI will help us reduce human intervention and significantly cut time to restore operations due to failures. Plus, AI will allow us to leverage a greater use of predictive analytics.”
Bo Bond, Managing Director, JLL, is the co-leader of JLL’s Data Center Solutions group, and is based in Dallas.