Americas Data Center Update

Overview


As pandemic headlines and timelines continue to dominate in the media, medium- to large-size corporations continue to operate in emergency mode with their IT infrastructure to keep up with an expanding distributed workforce. Major IT workloads continue to shift to cloud services providers such as Amazon, Google Microsoft, and others. In addition to the movement of IT workloads to the cloud, improving Hybrid Cloud strategies (see our article on Hybrid & Multi-Cloud are hurting data center real estate?), tools and acceptance are expected to accelerate more cloud and direct colocation deals.

The pandemic has caused a tectonic shift in business and has accelerated the work from home model like nothing else. As people learned how to work from home those companies that planned for a scalable, distributed IT infrastructure via cloud services had far less disruption to daily workflow.

The Volume Keeps Turning up


The largest internet exchanges across the world saw new record throughput over the past several weeks. DE-CIX is a major provider of network interconnection services and operates several carrier and data center-neutral internet exchanges in Europe, the Middle East, North America, Asia, and India. The company recorded a world-record of 9.1 terabits of data per second (or the equivalent of two million simultaneous HD videos streaming). The company cited a 50% increase in teleconferencing and a 25% increase in online gaming and social media usage as the primary drivers. There is no doubt that this volume will increase as the use of video conferencing will continue to increase due to need and familiarity with this capability.

Major Cloud Providers

In turn, the major cloud service providers are pulling the Americas data center market forward, absorbing near-record capacity of 340 MW in the first half of 2020. The revenue of major cloud services providers was up in the first quarter of 2020. Amazon recorded a 26% YoY increase (with AWS up 33%), Google 13% YoY (with Google Cloud up 52%) and Microsoft saw a 16% YoY increase (with Azure up 59%). While it is no surprise that demand for cloud services is up, this is on top of declines in cloud services in industries particularly hard hit by the pandemic such as airlines, hotels, and retailers to name a few.

Notable Transactions


Large acquisitions to date in 2020 include (all $USD):

  • Mapletree acquisition of DLR portfolio (±$582M)

  • DLR acquisition of Clise interest in Westin Building Exchange in Seattle (±$300M)

  • Landmark acquisition of Paypal data center in Phoenix (±$122M)

More Capital Joins the Party

Investors are attempting to enter the data center sector billions of dollars to invest but there is a disconnect between what buyers and sellers want. Prospective investors must be willing to take on some development risk to maximize future returns as sellers are proving unwilling to let go of operational assets.

Pension funds, sovereign wealth, private equity, and infrastructure funds are interested in data centers leased on 5 to 10-year terms, as they chase both growth and yield. Net leases are key as these organizations do not have the expertise to operate these facilities.

Major data center REITs remain focused on expansion to serve both large cloud services companies and corporations looking for further disaster recovery options and/or scalability. The five main data center REITs are planning to spend over $5.5 billion on current development over the next two years.


The Bottom Line


No one forecasted the kind of change that would take place in the first half of 2020 as a result of the pandemic. How this will play out in the next number of months and years is the subject of much conversation and debate. It is fair to say that the demand for cloud computing will continue and as such, the demand for additional data centers will as well. There will also continue to be change in the coming months as corporations decide to accelerate the move of IT workloads to the cloud and/or create hybrid IT infrastructures. We also expect to see a continuation of enterprises continuing to sell and/or leaseback their operating assets.


For more information on Cushman & Wakefield’s Global Data Center Advisory Group, contact us.

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