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Profit potential: Get ready, data centers are coming to a submarket near you

Mar 21, 2017

data-center-floor-320x170.jpgData centers are projected to double in the next five years, and all that growth is opening up new submarkets. We’ll brief you on what you need to know.

Here’s a number that’s worth a double-take: more than $4 billion has flowed into data center markets in the first quarter of 2017. For some perspective, that’s already more than 2016’s totals.

Cloud services are fueling much of this growth, with 71% of companies already doing some part of their business in the cloud, and major cloud providers making plans to triple infrastructure by 2020, according to the 2017 JLL Data Center Outlook.

But on the heels of the massive growth in cloud infrastructure is yet another force: the emergence of the Internet of Things (IoT). According to ABI Research, that market will skyrocket from "1.2 billion business-to-business connections in 2013 to 5.4 billion connections in 2020."

Together, these forces are driving the data center boom—and driving it into new submarkets. Could this data center surge be headed your way?

3 factors that will influence submarket growth

A lot of data center growth is concentrated in already dominant markets like North Virginia, currently the epicenter of the data center world. It’s where you’ll find top players like Google, LinkedIn, Microsoft, and (more recently) Oracle, thanks to the area's ultra-connected infrastructure. Demand has also surged in data center strongholds like Chicago, Dallas, and Northern California.

But new data center submarkets are starting to open up—and that’s a huge opportunity for brokers and investors. So what's making all those chess pieces move?

Three things: land scarcity, infrastructure, and cost.

  • Land scarcity. According to GlobeSt.com, "The top markets for data centers have seen so much expansion that land scarcity has caused many providers to seek out new submarkets.” In Chicago, for example, data centers are spilling out into suburban corridors, where developers don’t have to grapple with the same land constraints as they do downtown.
  • Infrastructure. But data centers don’t just depend on land availability—they also need the right supporting infrastructure. For example, although there’s plenty of available land around Dallas, there currently isn’t enough of an advanced energy infrastructure to match it.
  • Cost. Cost is also pushing data centers into new markets. According to CBRE, a typical 5 megawatt (MW) enterprise data center costs $270.1 million over a decade. It’s the low-cost submarkets that are now attracting these capital-intensive projects. These markets, as identified by CBRE, include Atlanta, GA; Charlotte, NC; Cheyenne, WY; Colorado Springs, CO; Des Moines, IA; Omaha, NE; Portland, OR; Quincy, WA; Salt Lake City, UT; and Tulsa, OK.

Does your area offer the right mix of land, connectivity, and cost? Good: it means you may be working with some interesting new clients in the coming years. And if that’s the case, you’ll need to understand what they’re looking for.

4 things clients will demand from data centers

Brokers and investors who want to stay on top of data center opportunities should pay attention to connectivity, security, energy efficiency, and flexibility.

Here’s a quick run-down of what data center clients will be looking for in each of these areas:

  • Connectivity. Ideally, data centers should have access to more than one substation and ample fiber optic connectivity. But most don’t. “Most data centers are fed from a single substation, which can be problematic if the substation experiences issues or failures,” John Greenwood, senior vice president at Aligned Data Centers, told GlobeSt.
  • Security. If a data center’s defenses look like something out of Ocean’s Eleven, that's probably a good sign. “Perimeter fencing, security cameras, laser-beam detection, dual-factor authentication and 24/7 on-site security guards” are just some of the defenses keeping Greenwood’s customers' data safe.
  • Flexibility. "Because IT is changing so fast, users are looking for shorter and more flexible lease terms to accommodate unpredictable growth,” according to JLL. "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.”
  • Energy efficiency. Data centers zap enormous amounts of energy, accounting for 2% of the nation’s total energy consumption. But the cost of all that consumption is ultimately passed on to clients. Data centers that have mastered energy efficiency will be an increasingly attractive choice.

Do you already work with—or hope to work with—data centers? Where do you think the market is headed? Post a comment and let us know!

Topics: Industry News

Irena Ashcraft

Written by Irena Ashcraft

Irena is a freelance writer who works with innovators, educators, explorers, and changemakers. From brave nonprofits to frontier-straddling startups, she helps clients connect with their biggest fans through writing that's fresh, relatable, and fun.

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