The Big Stories in 2017 for the Data Center Market
by Michael Rareshide, on Jan 23, 2018 3:08:51 PM
Sometimes we need take a look back to see where we are headed. This approach is especially true of the data center and colocation site selection industry, which for the past decade has taken quantum leaps forward each year in both global data center demand and global raised-floor capacity. Global Internet (IP) traffic — expected to increase nearly threefold over the next five years—will then have increased 127-fold from 2005 to 2021, according to a recent white paper from Cisco. By the year 2021, global IP traffic will reach 3.3 zettabytes from 2016’s 1.2 zettabytes. One zettabyte equals 1 billion terabytes or approximately 250 billion DVDs. The growth projections remain rosy for at least the next two to three years.
2017 will be considered one for the record books. Let’s take a look at some of the stories that contributed to a breakout year.
The hyperscale data center market shines
While the data center industry does not have a concise definition of a “hyperscale data center,” these raised-floor environments address the need for both data center and cloud computing housed in one facility. This portion of the data center market now includes massive stand-alone raised floor facilities that can generally exceed 500,000 square feet and 50 MWs of dedicated power on campuses that are scalable for another similar-sized structure. The architectural design allows it to optimize both performance and cost with significant scalability when they will be hosting tens (even hundreds) of thousands of servers.
These hyperscale data centers include those cloud operators, such as Amazon Web Services, Oracle, Switch and Microsoft, that offer infrastructure as a service (IaaS) and colocation services. The top tier Internet, search and social media giants such as Facebook, Google and Apple are included. Certain other major e-commerce and software as a service (SaaS) corporations, including PayPal, Alibaba and Salesforce have developed such facilities.
The hyperscale data center category outshone all other data center classes last year because of the distinct advantages it offers cloud customers. Growth estimates for 2017 as compared to 2016 should approach 30% year over year, well above the industry median. With 21% of all data servers currently housed in these hyperscale data centers, according to Cisco, by 2021 these facilities should be housing nearly 47% of all data servers, so 2018 could be another record-breaker.
Investor money pours into mega colocation and cloud operator acquisitions
The money definitely flowed into the data center sector in 2017, with a projected $20 billion of investment activity completed. These investments have been at all levels from the largest players to smaller regional operators seeking economies of scale. Just some of the notable projects:
Digital Realty Trust merged with its major competitor, DuPont Fabros Technology, in a $7.6 billion deal.
Equinix’s bought Verizon’s (Terremark) data center portfolio, comprising 3 million square feet in 29 data centers across 15 cities in North and Latin America, for $2.3 billion.
CenturyLink sold its data center and colocation business in the first quarter to a private investment joint venture led by Medina Capital for over $2.3 billion. Now re-branded Cyxtera Technologies, this mission critical portfolio comprised 57 data centers totaling 195 MWs of power spanning 2.6 million square feet across the U.S., Europe and Asia.
Digital Bridge acquired Vantage Data Centers’ wholesale data center portfolio for $1.3 billion, giving Digital Bridge a large presence in the Silicon Valley submarket.
Carter Validus continued its steady acquisition of multiple data centers across the U.S., including Atlanta, Boston and Charlotte, while also announcing a sale of 15 existing facilities in two transactions for over $1.1 billion.
Global cloud operators continue to duke it out for market share and infrastructure
Business customers continue to migrate some or all of their IT operations to the cloud. Amazon Web Services (AWS), the market leader in cloud computing had a significant head start years ago when it initiated its cloud division. AWS was projected to finish 2017 with nearly $17 billion in revenue. Data Center Frontier calculates that in Amazon’s massive Northern Virginia network of cloud data centers alone, its operations may be nearing 1,000 MWs of total capacity, not including its plans for another 2 million square feet to be delivered by the end of 2019.
Several other competitors are nearing Amazon’s lead status and are expected to overtake AWS. Microsoft Azure is on an aggressive pace, announcing that its cloud operations will reach annualized $20 billion in revenue by mid-2018. Microsoft Azure can offer not only its cloud infrastructure but Microsoft’s significant intelligent software products, helping to spur its growth and likely overtake AWS. Microsoft in 2017 (and 2016) has been a major consumer of wholesale data center space. That includes 30 MWs with colocation provider CyrusOne in two transactions, along with constructing several million square feet of its own facilities globally.
Cloud revenue now accounts for over 20% of IBM’s revenue, which according to Forbes, is expected to top $15 billion, making IBM a formidable competitor. With Google, Oracle, NTT Data, Salesforce, Alibaba and others also competing in this sector, the cloud computing market has become very crowded.
The 2017 data center market was on a torrid pace, exceeding what had been a record-breaking year in 2016. If 2018 can come close to these superlative results, the data center and colocation market will continue to both outperform and enjoy additional investment from other real estate sectors.