Market for Data Center Growth Likely to Continue

The market for data centers–a growing industrial real estate subsector–is well positioned for continued growth, said JLL, Chicago.

JLL said after a strong 2016 and 2017, cloud operators are still leasing data center space across all major North American markets, taking nearly 25 percent of available data center space in many major cities. This continued cloud leasing and growing interest from international occupiers will drive the data center market going forward, said JLL Managing Director and Data Center Solutions Co-Lead Mark Bauer.

“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,” Bauer said. “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.”

North American markets accounted for more than 60 percent of the nearly 400 megawatts currently under construction globally, led by Las Vegas/Reno, Nev. (40 megawatts), Toronto (39 megawatts), Chicago (34 megawatts), Dallas/Fort Worth (22 megawatts) and northern Virginia (22 megawatts).

JLL noted several trends currently shaping the data center industry. “Industry mergers and acquisitions are here to stay,” the Data Center Outlook report said, noting M&A and consolidation resulted in 48 deals and nearly $20 billion changing hands–larger than 2015 and 2016 combined. “This trend will remain in 2018 and many years ahead as several major players continue expanding scale and expertise.”

In addition, 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,” JLL said.

Foreign interest in the U.S. will also pick up speed, JLL predicted. 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.”

In addition, data centers have become “exponentially” more complex in recent years, JLL said, noting facilities, hardware and user requirements have all grown more complicated. Look for a jump in the industry’s need for remote monitoring, cloud-based management and customized deliverables, the report said.