New Trends in Data Center Real Estate Caused by COVID-19

The impacts of the COVID-19 pandemic and the ensuing shelter-in-place orders have caused a screeching halt to all segments of the economy and commercial real estate. One of the shining lights has been in data center and colocation real estate.

Data centers have been rapidly adopting new technologies as they race to increase efficiency and keep up with the pace of business transformation. This shift has accelerated due to the pressures created by the COVID-19 crisis. In data center and colocation site selection, the pandemic is providing another reason for sustained sector growth through 2020 as new paradigms for the mobile office employee, IT redundancyand increasing bandwidth are being explored.

So far, the good news is that “91% of organizations feel their IT systems are equipped to handle new policies resulting from the outbreak” though “41% are experiencing increased strain on internal IT resources, and another 14% expect to begin experiencing it within the next three months,” according to a new survey conducted by 451 Research.

During a recent CAPRE business continuity webinar hosted by executives from Zoom, Microsoft Teams and Equinix, these executives provided several interesting perspectives and anecdotes:

• Zoom had 10 million participants as of December 2019; that exploded to 200 million in March 2020 and 300 million in April.
• Microsoft Teams added 31 million daily active users in April 2020 alone, crossing over 75 million daily users.
• Both groups credited their IT architecture and global data center footprint for supporting the surge in demand. All of their cloud, colocation and data center partners responded to their capacity need with the “speed of now.”
• “If we did not have the cloud, what would we have done?”
• “No more three or four flights per week to meet clients. We have a new norm that is better positioned.”

Reduction or curtailing of office space needs; uptick in IT spending and data center needs

Many global real estate consultants are predicting a new phase in commercial office space. Employees were already a mobile society with their cellphones and laptops. The virus outbreak prompted countless businesses to implement travel bans, work-from-home policies and restrictions on internal and off-site meetings. These same companies have now spent a lot of money ensuring that such remote home-based platforms for its employees mirror their commercial workplace. 

Most companies are realizing that this capital investment should not be for a short-term solution. They are also watching to see if COVID-19 infections rise as economies open. As companies realize this success with seemingly little or no drop off in employee productivity (and morale), many are re-considering downsizing, re-stacking or possibly justifying the closing of some locations.

The result here is an expanded reliance on more data center services, including cloud computing, colocation and hybrid cloud IT solutions, which all will allow companies to ramp up technology and bandwidth. And with the stay-at-home orders demand for more streaming services are certainly increasing. Data center operators are enjoying this potential growth as evidenced by some recent announcements, some of which were just announced in the midst of COVID-19:

• TierPoint closed on $320 million equity infusion comprised of both existing and new partners (April 2020).
• Sabey Data Centers, a long-time data center developer, has $800 million in new securitized financing for its continued growth (April 2020).
• Global giant Equinix announced that it may issue over $1.2 billion in new stock to fund a non-disclosed data center portfolio.

Stop-gap methods are becoming permanent

Because of the speed of the pandemic, many organizations used a stop-gap method to address immediate needs and now they are working on longer-term solutions.

Enterprises have realized that their IT operations and data being hosted in the cloud can be automatically backed up, with unlimited capacity and fully accessible from anywhere in the world. No company’s IT organization, no matter how large, can match the efficiencies and agility of cloud providers and colocation operators, such as Amazon Web Services, Microsoft Azure, CyrusOne, QTS, TierPoint, NTT or Cyxtera, to name a few.

Companies will continue to expedite the migration of any and all legacy systems and the COVID-19 Band-Aid initiatives to preserve their IT operations in a secure and reliable environment.

Kudos to the essential data center technician

And now a shout out to another part of the essential workforce during this pandemic. While the healthcare community should take a deservedly earned bow for their frontline and tireless work, another silent workforce in the data center community has certainly allowed us to shelter in place, while maintaining our internet, phone, business facing and connectivity to the world. 

The data center community runs on a 24/7/365 basis and routinely has to address client emergencies to ensure that all IT systems are running smoothly while also maintaining strong security measures in the raised-floor environment. This part of the data center workforce is crucial to the core success of business operations.

Conclusion

The pandemic has been a watershed event for the world and a defining moment for the cloud and colocation operators. Demand is expected to continue its upward trend at least through 2020 as a result of this “new normal” meaning further growth in this sector.