Over the last month, Environmental Systems Design has conducted outreach with both our clients and other industry experts to develop a data center design and construction prospective for 2021.
2020 Highlights — Throughout 2020, development across data center campuses and multitenant facilities totaled approximately 7.8 million square feet (according to an Omdia report), representing 57% of the required capacity to support processing overages due to increases in usage as a result of COVID-19. Several large cloud providers are moving forward with multiple projects, hoping to absorb the capacity requirements set by end users. Construction value equates to approximately $11.9 billion, give or take, and there’s really no mechanism in place to evaluate the exact amount of construction value.
Hyperscale Builders — ESD works with four of the top five cloud providers. Last year, some of our clients decided to rethink their design options, while others went full force to complete the projects. Many of the projects were planned expansions within current campuses, while others planned for new large campuses (200-plus MW). One of our hyperscale clients published in November that it was operating 775% overcapacity, which spurred multiple large campuses throughout the nation as well as a global outreach. Many in the hyperscale community are looking to build overseas. This creates two problems.
- It’s difficult to navigate through the nuances of global demographics.
- The design and construction approaches differ across regions. In many cases, developers that are seasoned within the region will be employed to navigate through the business environment.
Multitenant Data Centers — While the majority of enterprise companies have migrated to wholesale or retail markets, hyperscale (cloud) tenants are reaching out to multitenant data centers (MTDCs) to deploy new applications or capacity management. Typically, these applications are 2-plus MW suites; however, the price point is lower for MTDCs than enterprise customers. This outreach from hyperscale to MTDC has proven to keep the design and construction of data centers moving forward throughout 2020 and into 2021.
One new objectives for U.S. MTDC companies is to migrate to Europe and Asia by the end of the year. Many American companies need to deploy within these regions to support a global economy. Typically, this has come in the form of acquisitions of local data center operators as well a new development within certain regions. CyrusOne, for example, identified fourth-quarter approximate earnings of $34 million, of which $30 million was developed overseas. Additionally, Digital Realty Trust acquired InterXion for $8.4 billion in 2020 — the largest data center acquisition to date within the industry.
The Edge Market — While industry analysts predict the real surge in edge compute will happen in 2022, companies are already aligning themselves to create programs to support this market. ASHRAE projected 75% of processing will be conducted through edge compute. Typically, edge will be installed from two to 10 rack installations operating at 7 to 25 kW per rack. Whereas engineering companies have been designing for campus installations with 15 engineers per project, now, the same 15 engineers will be installing 25 locations within urban and remote regions. Hyperscale companies have edge products that can be deployed simultaneously to support applications. Landlords also have a stake in edge, as they can provide space within high-rises and other areas to generate revenue. Some companies have been doing this for years and refer to it as cache data centers.
High-Performance Compute (HPC) — Several HPC projects were put on hold last year, specifically within the government sector. While much of the compute is classified, other areas of compute are not and are being migrated to the cloud. We anticipate HPC will pop it’s head up in the fourth quarter.
Command Centers/Enterprise — While much of the enterprise market has migrated to wholesale/colo, the financial industry is continuing to build its own data centers. Also, smaller financial companies are looking to do a sales/leaseback scenario with investors/operators. Due to COVID, we believe command center operators should reevaluate the office design and central operation to include new design standards. However, the main infrastructure should remain in tack.
Mergers and Acquisitions — As the rise in processing within cloud and MTDCs continues, private investors continue to invest within the data center market. We have not seen an increase from pre-2020, but activity is still occurring with investment and private acquisitions. The majority of acquisitions should be overseas; however, there are a few opportunities for acquisition and consolidation within the U.S., specifically with companies, such as Stack and Element Critical, that are on the ground floor and focused in the growth/operations.
2021 Outlook
This year should remain strong within the data center design and construction industry, moving well into 2024. Large campus projects take up to two years to build, and new software applications will continue to be developed, which will further create new opportunities within builds. Additionally, due to equipment life cycles, we will begin to see an increase in retrofit upgrades for older facilities.
All of us are very lucky to be in this industry, especially during a pandemic. Other industries are not doing as well, but it’s the technology industry that has helped carry everyone though.
Be safe out there, and stay warm.
