The Top Stories in Data Center Site Selection for the First Half of 2020

With white-hot growth in data center site selection from 2014-2019, projections in late 2019 suggested that 2020 would also be an above average year for data center companies, hyperscale users and colocation providers. The sector remains healthy despite the national and global economic challenges due to the coronavirus pandemic.

We’ll take a look at the top stories in the first half of 2020 and the forecast for the remainder of the year.

COVID-19 Pandemic

We cannot start the discussion of the top 2020 stories without leading off with the COVID-19 pandemic and its impact on the business world. In a very short period of time, all business pivoted from a work environment to working from home. What this sheltering in place did was substantially increase the reliance on IT infrastructure. This forced experiment has shown some positive results. Over 90% of companies believed that their IT infrastructure was able to handle the new stay-at-home requirement, according to a report from 451 Research.

As such, the COVID-19 crisis has actually been a boon to the data center and colocation sector. While businesses had to maintain the robustness of their IT systems at work, they had to ensure that the work-at-home resources mirrored the work environment. Several new critical initiatives are transforming the workplace (and the data center), where business travel is all but shut down and videoconferencing services such as Zoom, Microsoft Teams and Google Meet have exploded. All are scaling up their services with substantial increases in data center capacity, according to two recent Data Center Knowledge articles:

• “Zoom provisioned up to 5,000 to 6,000 servers at a time from AWS as it began to expand its in-meeting video capacity [and] added more cloud capacity through a deal with Oracle…to quickly help Zoom scale up to using seven petabytes through Oracle Cloud Infrastructure servers each day, roughly equivalent to 93 years of HD video.”
• “At the end of March, Microsoft Teams set a new daily record of 2.7 billion meeting minutes in one day, up from 900 million minutes just two weeks earlier. In April, that number climbed to 4.1 billion meeting minutes in a single day.”
• Zoom’s market cap of $75 billion is “more than the combined value of the seven largest airlines.”

Most Data Center and Colocation Operators’ expansion plans remain in place

The result for the data center market is that increased reliance on IT networks and expanding the robustness of digital infrastructure appears to be business as usual. And so it follows that many of the hyperscale data center operators and colocation companies continue to remain bullish on their operations such as:

• The global colocation giant Equinix announced in June that it will purchase a portfolio of 13 Bell Canada data centers across Canada for $750 million
• Compass Datacenters announced that it is entering its second market in Canada in Toronto, where it projects to spend $100 million delivering 10 MW of critical load for its initial phase.
• To highlight its breadth of operations across the U.S., Facebook had the following announcements over the past 60 days:
• A new data center campus in Dekalb, Illinois, totaling over 900,000 SF when fully developed and using 100% renewable energy
• Projected 970,000 SF on a new 800-acre site in Gallatin, Tennessee, outside Nashville with a 50 MW substation.
• 450,000 SF expansion at its existing Prineville, Oregon, campus
• Aligned, a wholesale data center developer with four campuses across the U.S., is more than doubling its Ashburn, Virginia, site with a new 513,000 SF, 120 MW facility planned with 40 MWs delivered by the end of 2020.
• Flexential will expand its Hillsboro, Oregon, site with a new 358,000 SF building delivering 36 MWs of critical load to the data center floor.
• Amazon submitted a fast-track application to build three data centers totaling 300,000 SF on 90 acres in the South Riding area of Loudoun County, Virginia, expecting to invest ~$200 million. Amazon already has over 40 data centers across the Northern Virginia region concentrated in Loudoun County.

More money flows into enterprise class data center and colocation operations

Investor interest remains high for data centers amid this economic disruption caused by the coronavirus pandemic. Other commercial real estate asset classes, such as retail, are suffering with portions having an uncertain future. The data center sector requires significant capital investment, and investment money is flowing into individual projects and also into businesses, with new investment groups entering in the first half of 2020:

• Global investment firm KKR announced a $2.2 billion fund focused on investment opportunities in data center and technology space across North America, Europe and Israel.
• Colony Capital will inject $1.2 billion in new equity into Vantage Data Centers, a wholesale data center developer with 12 North American mission critical facilities with growth plans in Europe. Colony had already invested $325 million in Vantage back in 2017.
• Equinix just closed on over $2.6 billion in senior notes.
• Landmark Dividend, an owner and developer of data center property interests and digital infrastructures, purchased the Paypal data center campus in Phoenix for $122 million. The purchase is the company’s 16th data center asset acquisition in the last 18 months.

Even some bad news is good news

Some data center and telecom companies may have had “hiccups” in their operations, but even during the economic downturn, a few are moving forward looking leaner and meaner:

• Windstream Communications will be exiting its complex Chapter 11 bankruptcy over the next calendar quarter shedding at least $3 billion in debt.
• INAP, formerly Internap, completed a prepackaged bankruptcy in less than two months with $300 million in new funding while becoming a private company.

Maryland offers data center economic incentives

On the site selection data center matrix, infrastructure, power and real estate are important factors, but economic incentives can be crucial for the final decision and can be a difference-maker. The state of Maryland just approved a new exemption from the state’s sales and use tax for the sale of qualified personal property to qualified data centers. The creation of the data center tax exemption brings Maryland into line with its neighboring state, Virginia, on sales tax policy.

Conclusion

While the pandemic and the resulting global economic downturn has impacted so many consumers and businesses, the new paradigm of doing business continues to provide an opportunity in the data center and colocation sector.