4 Trends Driving the Data Center Industry (and What It Means for Commercial Real Estate)

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By: Christian Beaudoin, Midwest Markets Research Director and Andy Cvengros, Associate Director of JLL’s Technology Practice Group JLL_Data Centers Image

Data center stocks experienced rapid, upward momentum throughout the early months of 2016, with an average gain of 19% during the first quarter and 50% in the second quarter.

What’s more, the cloud managed services market is forecasted to grow to more than $76 billion by 2021 globally (it’s currently at more than $35 billion!).

It’s clear that the future is bright for wholesale data centers. That said, providers must stay on the cutting edge to keep up with shifting sovereignty laws, high demand for cloud technology, and more sophisticated IT resource planning.

JLL’s newly released Data Center Outlook dives into the industry changes you should have on your radar. Read on to learn about how companies are adapting to the biggest data center trends.

1. Cloud Adoption Acceleration Drives Growth

U.S. companies have taken more than just a liking to cloud technology. They’re prepared to spend the money to integrate cloud computing into everyday tasks. In fact, cloud spending is expected to reach $204 billion in 2016 alone, and nearly 71% of companies have already adopted varied types of cloud services.

Why cloud computing? The technology allows companies to scale up and down as the business needs without having to self-fund infrastructure and operate an IT environment. The pay-as-you-go set up and quick provisioning allows for faster testing and greater speed to market.

Consequently, the rapid adoption of cloud computing has led to an increased demand for data centers across the country.

As demand for the cloud amplifies, data centers themselves are in need of larger operating sites with greater power to meet the needs for server space. To meet evolving expectations, data center operators have to adapt. Data Center REIT’s are engaging in a race for land and buildings with quick access to power and fiber. Their process for building is having to accommodate “just-in-time” builds where several year build-outs are done in as little as a few months.

2. Right Sizing Old IT Environments

Due to technology advancements, users are looking to optimize their IT environment. In the early 2000’s, enterprise users over built, becoming denser or more efficient, leaving valuable space and unused power.

Users are now taking this opportunity to outsource to colocation or move to cloud applications and reduce their overall IT spending.

3. Data Center Tenants Call for Lease Flexibility

Data center demand is growing at rigorous pace, however also changing dramatically. Tenants are in search of speed to market, access to cloud and flexible contracts. This hybrid approach of own, lease, managed service and cloud has turned the company CIO into a broker of IT workloads.

Because IT is changing so fast, users are looking for shorter and more flexible lease terms to accommodate unpredictable growth. The average lease length for multi-tenant data center buildings has shortened from the typical 10-year lease to five or seven years. Having the ability to shift contract monies from colocation to services or cloud is also seen as an added perk.

4. Climate Change Triggers Change in Building Efficiency

Like other businesses, the data center industry comes down to the bottom line. With the changing environment where resources constrained, operators have to shift their design strategies to stay competitive with other markets that have access to cheap power and free cooling.

For example, drought-stricken areas like California, which are also home to tech giants and data center leaders, are implementing new cooling laws that promote refrigerant-based cooling over water-cooling. Oceanic cooling and desalination plants are now a very real need.

Google capitalized on its on internal IP and created an artificial intelligence (AI) unit to manage its data centers’ power usage, resulting in a 40% reduction in electricity. While not every company can get its hands on AI, market leaders like Google can leverage their own innovations and inspire customers to implement similar habits.

The data center industry has its unique challenges however it also opens up windows of opportunity for future innovation around the world.

Download the full Data Center Outlook for more details.

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About the Authors

Christian BeaudoinChristian Beaudoin is the Director of Research and Strategy for JLL in the Central U.S.  He manages a team of research analysts covering market dynamics in office, industrial, and retail properties. He drives industry-leading research and analysis on economics, real estate development, and market conditions.

 

cvengros, andy_jpgAndy Cvengros is a Vice President with JLL and is member of the firm’s Midwest Data Center Services Group. Focusing exclusively in mission critical tenant / user representation, Andy assists his clients in strategic planning, acquisition and disposition of data center assets, financial analysis, lease analysis, market valuations and general consulting services.

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