Location is Key in the Growing Appetite for Data – and Data Centers
The world’s appetite for data is insatiable. Experts project a 4,300 percent increase in data generation over the next five years, putting excessive pressure on data center operators to profitably manage this data gluttony.
And every bit – or byte – of data requires space on a server in the real world, which means demand for data centers is skyrocketing as well. This rising demand is feeding merger and acquisition activity among data center companies, as providers look to increase their geographic footprints and establish themselves in areas that are underserved, but offer the right enticements.
Three critical questions that data center developers and investors must evaluate when considering an expansion location include:
What trends are most heavily impacting data center specifications?
Several factors are influencing corporate data center strategies. The rapid adoption of “the Internet of Things” (IoT) is putting pressure on companies to obtain secure and reliable network connectivity and cloud infrastructure. This means providers will continually need to look to smaller, edge markets that want access to low latency services as new opportunities for expansion. Disaster recovery needs are intensifying as well, with regulatory measures requiring facilities to be located certain distances away from company headquarters and more enterprises turning to co-location or outside providers for backup centers. Technical complexities and a rapidly evolving environment are pushing more businesses to decrease their ownership of data facilities and use more hybrid structures with both on- and off-premise capacity.
How will rising demand for ‘shelf space’ impact the data center market?
More so than co-location, migration to the cloud providers is a big trend in the market. It’s expensive to build, maintain and upgrade a data center, so businesses are increasingly shifting from owned facilities to third-party data centers to offset costs, maintain flexibility and access to new technologies without capital investment.
As enterprises make this shift, they’re looking to data center providers to offer more solutions, security and connectivity. However, expansion is expensive for data center providers, too. New data center construction costs are high, with infrastructure investments costing as much as two to three times the cost of the basic construction. Other challenges facing the multi-tenanted data center provider is the surging activity. Large providers looking to buy up smaller providers that can add extra value or position them in new, strategic locations instantaneously affects the dynamics of the market.
Where are the new growth markets for data center facilities?
High real estate costs are commonplace across most North American major markets right now, according to JLL’s “Data Center Perspective.” Data centers are popping up in several new hotspots that offer the right combination of affordable utilities and rents, tax incentives and customers. The suburbs surrounding Washington, D.C., are one such leading market, offering proximity to high-demand users in the government and advantageous business policies in Northern Virginia.
Utility costs are a major factor in data center site selection, given that a penny saved in cost-per-kilowatt-hour (kWh) offers the potential to save millions in operating costs. New emerging cities such as Montreal are becoming one of the most affordable major markets, with utility rates nearing 3.5 cents per kWh – significantly lower than the national U.S. average of 7.4 kWh in the markets JLL surveyed in its report – and it also dangles highly attractive tax incentives. Adding to their appeal is the fact that energy utilized in these markets is truly clean energy 100 percent produced by hydro sources.
Demand for services is another key factor behind growth markets. Texas is experiencing an influx of HQ relocations while Chicago is seeing more West Coast tech companies develop data center sites for cloud hosting strategies, and it has become the second most-active market for data center construction, just ahead of Silicon Valley.
Article by Jon Meisel and Spencer Jurman. Jon Meisel is the East Region lead for JLL’s Data Center Solutions group. Spencer Jurman is the National Practice Lead for Mission Critical facilities for JLL.
