Closing out a strong 2017, the global data center market is poised to continue surging for the foreseeable future. JLL’s 2018 Data Center Outlook reveals that even after a record-shattering 2016, cloud operators are still leasing data centers across all major North American markets, taking around 25% of available data center space in many major cities.
Overall, North American markets account for over 60% of the near-400 megawatts (MW) currently under construction globally, with Las Vegas/Reno (40 MW), Toronto (39 MW), Chicago (34 MW), Dallas/Fort Worth (22 MW), and Northern Virginia (22 MW) leading the pack. Despite many U.S. occupiers looking to expand their global footprint in 2017, U.S. and Canada were responsible for 363.5 MW of new inventory last year.
This year, continued cloud leasing and growing interest from international occupiers will be among the key drivers for the data center market.
“2016 was the year of the cloud, 2017 was the year of international exploration beyond U.S. borders, and 2018 will be the year of foreign interest,” said Mark Bauer, managing director and data center solutions co-lead, JLL. “Not only are international companies accelerating efforts to reach the North American masses, but pent up demand still persists in some U.S. and Canadian markets. While both 2016 and 2017 were banner years for the industry, the market should remain strong in 2018.”
Following a year defined by expanding global footprints, strong cloud leasing and record levels of M&A activity, these five trends are shaping the data center industry in 2018 and beyond:
Industry M&A is here to stay. Last year, M&A and consolidation resulted in 48 deals and nearly $20 billion (larger than 2015 and 2016 combined) changing hands. This trend will remain in 2018 and many years ahead as several major players continue expanding scale and expertise.
Gateway to the cloud: Add-on services are on the rise. The data center industry continues to mature — and enterprises are looking outward. In 2018 and beyond, users will consistently seek add-on services and outsource data center expertise as hybrid models, such as hybrid architecture with local cloud or extensions to hyperscale providers, become the norm.
Foreign interest in the U.S. will pick up speed. Foreign data center companies are expanding their global footprints, and the U.S. is a premier location. As international enterprises aim to reach the masses, expect a jump in interest and activity in both primary and secondary North American data center markets.
Continued growth of complexity, users, data center solutions and facilities. Data centers have become exponentially more complex in recent years — that’s no surprise. Yet this applies to every facet of the business: facilities, hardware, user requirements and solutions. Expect a jump in the industry’s need for remote monitoring, cloud-based management and customized deliverables.
“Incredible recent M&A activity is both leading and causing the significant uptick in data center facility and network complexity,” said Bo Bond, managing director and data center solutions co-lead, JLL. “Far beyond 2018, both operators and occupiers will be dedicated to innovations such as optimized IT functionality. This uptick in innovation should play out across the global M&A stage as key data center players strive to stay ahead of the game.”
Living on the ‘edge’: The need to be near end users will impact real estate strategy. Consumers are more connected now than ever before, and speed is of the essence. Therefore, data center users have an urgent need to be near end users. ‘Edge’ markets, such as Atlanta, Los Angeles, and Phoenix, began to see an uptick in absorption over the second half of 2017, a trend that should continue through 2018.
For more insights on data center industry performance for 2017 and the outlook for 2018, download JLL’s 2018 Data Center Outlook.