Data center site selection continues its white-hot growth in the first half of 2019 across all sectors of data center and colocation space. Billions of dollars of investment continue to pour into this segment and for the next three-year horizon, the projections are for more continued and needed expansion to occur.
According to the Cisco Visual Networking Index: Forecast and Trends, 2017-2022 White Paper (recently updated in the first quarter of 2019):
While there have been many significant announcements for this first half of 2019 in data center infrastructure and real estate, Site Selection Group is highlighting some important stories in this segment making an impact:
Hyperscale data centers dedicate more capital investment to new facilities
These massive data centers are classified into two categories — those that will serve only the needs of huge, data-heavy companies like Microsoft Azure and Facebook and those being built for colocation operators like CyrusOne. Both types of raised-floor environments are classified as “hyperscale,” which are made flexible enough through energy efficiencies and other optimizations to be able to expand and meet demands of big data, cloud computing and enterprise customers. According to Data Bridge Market Research, the Hyperscale Data Center Market is “projecting a rise in estimated (revenues) from $31.98 billion in 2018 to an estimated $208.78 billion by 2026,” representing a compounded growth rate annually of almost 27%.
In a recent McKinsey & Co. report, “over the last three years, hyperscalers have spent $185 billion on data centers. Amazon, Microsoft, Google, Apple, and Facebook are responsible for almost 70% (over $50 billion) of these huge capital expenditures. Hyperscalers already account for about a third of total data-center network traffic.”
Some first half of 2019 announcements include:
Zayo Holdings goes private in a major acquisition
Announced in May 2019, fiber network owner Zayo Group Holdings is being bought by Digital Colony Partners and EQT Partners in a transaction valued at over $14 billion.Zayo is an important player in the data center market and operates a 130,000-mile fiber network with 51 carrier-neutral data centers in the United States and Europe. Zayo’s network, including the acquisition of over 15 fiber networks companies, continues to benefit from rising demand for bandwidth, driven by cloud computing and streaming.The news illustrates the optimism that the investment community has about fiber networks, which are critical to the next generation of communications services, particularly 5G wireless services.
New money raises from major colocation operators
The capital inflow to the powered shell and colocation sector will fund new growth initiatives including the following:
American Tower diversifies with Colo Atlanta purchase
American Tower has acquired the Atlanta-based ColoATL data center. While American Tower is a goliath in its sector and operates over 170,000 wireless and cell tower sites globally, this is American Tower’s first acquisition in the data center colocation market. ColoATLis a small operator with 26,000 square foot colocation space and meet-me room in 55 Marietta in Atlanta.
This relatively small but intriguing $70 million acquisition shows that tower operators are interested in expanding to support “edge computing.” Edge data center facilities quite literally extend the “edge” interconnection ecosystems further from the traditional internet hubs in places like Ashburn, Dallas, Seattle or Silicon Valley. With content streaming and consumer data demands the driving the need for edge computing, so is the need to house that equipment. American Tower is actively working to add small data center sites to its cell towers and the central colocation site allows for needed infrastructure. Look for future acquisitions across mission critical disciplines like this one.
State of Illinois offer 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 Illinois just approved major tax breaks for large data centers spending over $250 million over a five-year period, along with other requirements.
The Chicagoland region is in the top five U.S. data center markets and these incentives will certainly drive additional projects.
Site Selection Group expects continued major announcements like these for the rest of 2019. Even the Cisco white paper admits that its “approach to forecasting IP traffic has been characterized as conservative,” so the data center real estate market should continue its robust pace.