The pandemic helped accelerate data center use, as businesses suddenly faced a greater need for cloud technology to connect and support remote workers. According to a recent report by commercial real estate services firm Cushman & Wakefield (C&W), this increase in cloud migration has accelerated the growth and expansion of data centers globally, allowing major data center operators to expand their footprints. has done.
“Dependency on technology platforms is at an all-time high in the past 24 months, creating demand for more data center space around the world,” says Phoenix-based Carl Beardsley, senior director at JLL Capital Markets. And users are responding by building up the data space and transforming it at high velocity.
Over the past year, US users absorbed 500 megawatts (MW) of data space, says Dallas-based Bo Bond, executive managing director and leader of C&W’s global data center team. Much of that absorption was driven by “hyperscalers” — the largest occupiers of data centers, which are mostly cloud services firms that include Google Cloud, Amazon Web Services (AWS) and Microsoft.
According to Beardsley, JLL tracks both collocation absorption and hyperscale development activity. In terms of absorption activity in the colocation space, the top five or six US markets typically see 70 to 80 percent of all activity, he noted. These markets include Northern Virginia, Phoenix, Chicago, Santa Clara, California, Dallas and the Pacific Northwest.
These top markets are all seeing a significant amount of new development, but both Phoenix and Hillsborough, Ore., have grown in recent years. Beardsley says they experienced an increase in colocation developments because they offer competitive tax advantages, low-cost electricity, relatively low land costs, and a quick eligibility process. These factors are also attracting public cloud users.
Data center developers are looking for additional capital to meet the additional demand, and they are not disappointed, as data centers are currently among the hottest US alternative real estate investment areas, and many investors are entering this market for the first time. are entering. Time.
“Historically, the data center capital market was a mix of data center operators, infrastructure funds, data center REITS and investors who partnered with preferred operators,” notes Beardsley. “Now, there is a huge influx of institutional capital looking for high-yield opportunities that have done well through the pandemic that are shifting attention away from the ‘core’ asset classes in the region,” he says.
“There’s a ton of money going into this area,” says Bond, noting other new entrants, including private equity funds, investment funds set up specifically to invest in data centers, and sovereign wealth funds have all hit this market. has entered. There are also infrastructure funds that have changed from roads and bridges to data facilities and towers.
In fact, so much money is going into large public data center REITs that they are being consolidated and private. The three largest data center REIT portfolio acquisitions took place last year when CyrusOne, CoreSight Realty and QTS Realty were taken private. For example, Blackstone acquired QTS for $10 billion.
The new development is fueled by increased user demand over the past six to 12 months for large blocks of space, with some users even taking up entire buildings of 250,000 square metres. foot or more, Beardsley says. In fact, demand for single-tenant data centers exceeds demand for multi-tenant space in some of the top markets, such as Northern Virginia, where 53 percent of users are seeking single-tenant centers.
“It can be difficult for users to predict future IT load, so these end users should make sure they are buying enough space to continue to scale with business demands,” Beardsley says.
Demand for data center space is so strong that cloud service providers driving greenfield growth are attracting institutional capital, Beardsley noted.
While hyperscalers tend to lease a lot of data space from colocation operators, Bond says the huge boom in cloud-based services is also driving growth by cloud companies. Beardsley notes that the top five hyperscalers are building in primary markets as well as areas dominated by data center operators such as Iowa, New Mexico, Nevada and Ohio. “These hyperscale users typically buy large land parcels – more than 300 acres – and build a campus with many buildings,” he adds, noting that they often require additional resources that are needed in urban areas. -Fill sites can be difficult to obtain.
“As the use of cloud-based computing grows, hyperscalers will continue to build in the secondary and tertiary data center markets,” Beardsley says.
For example, Google Cloud plans to build new data centers in Nebraska, South Carolina, Virginia, Nevada and Texas, according to an announcement made by Alphabet and Google CEO Sundar Pichai last May. Apple will begin construction this year on its $1.3 billion data center in Wookiee, Iowa, which has been on the drawing board since 2017, reported KCCI Des Moines, And Meta (Facebook) is building a new $800 million data center near Kuna, Idaho, to support its future Metaverse. data center frontier,
AWS is building data centers in new markets around the world, but its biggest game is right here at home. The tech giant plans to spend $35 billion to build four data centers of more than 1 million square feet. ft. on an 80-acre site adjacent to Manassas Mall in Prince William County in northern Virginia, according to DCD News, The company’s data center revenue rose nearly 40 percent year-over-year to $16.1 billion in the third quarter of 2021,
And Microsoft has unveiled an aggressive plan to build 50 to 100 new data centers each year in the US and around the world for the foreseeable future. crnas it expands its Microsoft Azure cloud offerings around the world.