Top Stories in the First Half of 2019 for the Data Center Market

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):

• Annual global IP traffic will reach 4.8 ZB (zettabytes) per year by 2022, up from 1.5 ZB for 2017. FYI: One zettabyte equals one billion terabytes.
• There will be 3.6 networked devices per capita by 2022, up from 2.4 networked devices per capita in 2017. The United States projects to have the highest average by 2022 at 13.6.
• Internet gaming is seeing a resurgence—the traffic will grow nine-fold between 2017 and 2022.
• Smartphones will represent 44% of global IP traffic by 2022 (up from 18% in 2017).

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:

• Google will spend over $13 billion in new expansions across the U.S., with the bulk of that spending going to new data centers in Nevada, Minnesota and Texas.
• Apple announced that it raised its capital commitment to data center construction to over $10 billion over the next five years.
• Microsoft is commencing construction on three recently purchased sites in the Phoenix region, two in Goodyear and one in El Mirage, with each site accommodating over 1 million square feet and 100 megawatts.

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:

• Vantage Data Centers, a leading provider of wholesale data centers in support of business and mission-critical applications, announced that it has raised $675 million in debt and equity financing.
• T5 Data Centers, the wholesale data center and powered shell developer, is being backed with $2.5 billion from Canada-based QuadReal for the development and acquisition of new facilities.
• STACK Infrastructure has secured $850 million to finance the growth of its wholesale data center operations. STACKwas formed in late 2018 by investor IPI Data Center Partners with assets acquired from Infomart Data Centers and T5 Data Centers, combining eight data centers and 100 megawatts of capacity across a national footprint.

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.

Conclusions

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.