The enterprise data center market is entering what once would have been considered a bubble, given the volume and pace of new facilities coming online. But is it really a bubble if demand continues to outstrip supply for the foreseeable future?
According to commercial real estate services provider CBRE, the current boom is in response to the skyrocketing demand for data infrastructure from cloud providers, particularly the hyperscale segment led by Amazon, Microsoft and Google. The company reports that the vacancy rate of the current data center market is 4.6 percent, which is the amount of infrastructure that has been built but not yet leased. That’s a pretty tight market, but CBRE expects that to ease up in the next few years, given that of the 271 MW of capacity currently under construction in major markets, a good 160 MW of it is being built speculatively.
This is leading to a frenzy of deal-making, particularly in North America, reports Datamation’s Pedro Hernandez. He notes that real estate firm JLL estimates that during the first half of 2017, data center M&A jumped to a record $10 billion. At the same time, new construction gained by 43 percent over the same period in 2016. Much of the buying is being done by mid-tier providers like Equinix and Digital Realty, which have been funneling billions of dollars into expansion efforts – in part to keep price parities close to the large providers but also to take advantage of emerging intelligent cloud management capabilities that will ascertain optimal cloud environments from data like services offerings and resource efficiency.
This is the main reason why all of this new infrastructure will be a net gain for the enterprise industry and the world in general, says Data Realty’s Aaron Binkley. New systems and architectures are more efficient than the aging plants run by most enterprises, so not only will the cloud provide lower cost solutions that are more scalable and flexible, it will drive down the energy consumption that currently makes the data industry one of the heaviest consumers of fossil fuels. For providers like Digital Reality, these economics are propelling a constant drive to become leaner and greener, as evidenced by the company recently achieving its goal of 20 percent reduction in energy consumption seven years ahead of schedule.
With all of this purchasing of data infrastructure, though, somebody has to be selling. And apparently, the telecommunications industry is looking to get out of the physical data center market in favor of more lucrative network and data services, which is a boon to those who specialize in running virtualized systems, says Peak 10 CEO Chris Downie. It turns out that while building data resources at scale is one thing, managing them and delivering them to customers is quite another. As this pattern unfolds, the enterprise will benefit from having its key partners specializing in what they do best: telcos providing connectivity and networking services and cloud/colocation providers fulfilling basic infrastructure needs, as well as higher-level compute and storage services.
It’s important to note that all of this activity is basically aimed at catching the infrastructure market up to current data demands. But as Big Data and the IoT hit commercial levels, infrastructure needs will rise even more dramatically, particularly on the edge.
Now that virtualization and the software-defined data center (SDDC) have freed data users from the confines of enterprise infrastructure, the data industry faces the same old problems on a global scale: not enough resources to accommodate the creative energies of the knowledge workforce.
Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata and Carpathia. Follow Art on Twitter @acole602.
