The Impact of COVID-19 on Data Center Real Estate
by Michael Rareshide, on Apr 22, 2020 10:09:26 AM
COVID-19 has severely impacted both the U.S. and the global economy, with its impact likely being felt for many more months if not well into 2021. If you think about it, colocation providers, cloud networks and enterprise data center groups have had to address what is likely the biggest crisis of their lifetimes.
Until COVID-19 struck, the U.S. economy was on a sustained growth trajectory in excess of a decade. The data center and colocation industry had exploded during this time with double digit annual growth. The major cloud service operators, including Google, Alibaba, Facebook, Amazon Web Services and Microsoft, recorded over $66 billion in capital expenditures in 2019, which was a 3% increase over calendar 2018, according to the research firm Dell’Oro Group. It projects similar capital spending in the cloud data center sector this year, despite the expected impact of the pandemic.
However, the Dell’Oro Group notes that businesses will be conservative in their IT spending in 2020 to preserve capital. With so many enterprises concerned about their future and now on much shakier ground than before the pandemic, data center operators could be facing challenges for new and sustained growth.
Increased data center and colocation demand a positive sign
Overall, the data center and colocation market has, to date, remained relatively unharmed from the pandemic. This year, more than ever, businesses have needed robust networks and reliable systems as their employees, students and consumers remain at home. Online has become the lifeline of every business. The result is dramatically increasing the use of many online services, including streaming media, virtual private networks (VPNs), online gaming, cloud computing applications and more.
Translation: increased revenues to data center and colocation operators due to this increased demand.
According to OpenVault, a technology solutions and industry analytics provider for broadband operators, as the U.S. adjusts to the social distancing mindset from the coronavirus, broadband consumption during the 9 a.m. to 5 p.m. business day has risen by more than 41%. Overall usage in March is on track to outpace any previous monthly record. The even better news is that the networks seem to be able to handle the additional capacity without diminishing the consumer experience (though noting NetFlix, Amazon and YouTube reduced streaming quality in Europe as a precaution).
Some other anecdotal observations that help reinforce what is happening in the data center and colocation sector:
- Zoom’s popularity: Face-to-face conferencing has become an important business and education tool. Zoom reported that in late 2019, its high point of daily virtual participants neared 10 million. For March 2020, Zoom’s total daily virtual participants is more than 200 million.
- Cloud services: Per a recent Data Center Frontier article, “use of Microsoft’s cloud services is soaring amid the COVID-19 pandemic, with usage increasing as much as 775% in regions implementing social distancing and shelter-in-place orders.”
- Resiliency plans by major financial institutions: Several Wall Street firms have utilized their disaster recovery plans with their preferred colocation provider to ensure that their operations are running smoothly.
- Video gaming: It’s no surprise that gaming has increased coupled with the cancellations of other activities. Verizon reported a 75% increase in videogame usage.
Many corporations across the U.S. will likely be re-assessing the success or failures that occurred during the stay-in-place orders during this pandemic. Generally, the ability of data center networks to successfully meet the surging capacity demands — with only intermittent reduced download speeds reported — is an excellent sign for the data center real estate community. Most hyperscale operators are seeing this time as an opportunity to seize market share and for enterprises to continue to embrace IT outsourcing.
The result may impact how office space is designed in the future, meaning the likelihood of smaller footprints, as corporations realize the potential of work-at-home solutions both limited and permanent.