Five Data Center Trends to Watch in 2017

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Jan. 26, 2017

data center trends

1. M&A activity will disrupt the playing field and increase barriers to entry for newcomers.

Mergers and acquisitions in the data center sector surged in 2016, a trend that is on pace to continue throughout 2017. The industry is consolidating as well-known providers increasingly set their bidding sights on well-known co-location companies. As established players become bigger, expect higher barriers to entry for newcomers to the sector.

2. Shifting global policy and economic trends will spark important new questions about sovereignty and taxation. 

The U.S. data center climate will evolve with influence from a new presidential administration and federal mandates for data center optimization. Industry game-changers abroad include the unknown impact of Brexit and operator tax breaks, as well as a continuing push for data sovereignty.

3. Data must be stored somewhere, but cloud adoption is changing which data centers store it, and where.

As five-year leases are expiring, demand is surging toward hyperscale and hybrid cloud solutions in hub markets. Expect to see swift movement to the cloud in established data center markets from Silicon Valley and Northern Virginia to London and Tokyo. Already, some major cloud providers are anticipating they will need to triple infrastructure by 2020.

4. Retail pricing may be on the way out, as wholesale pricing becomes the norm. 

As organizations flock to the cloud for its promise of low capital output and high business value, the industry is seeing a seismic shift in pricing and contract terms. Wholesale pricing has traditionally been the domain of large scale projects, but now with the rise of hyperscale sites, the industry is seeing bulk pricing trend downward, too. Today, bulk pricing is reaching projects as small as 75KW, or 10 racks, compared with days past when they would have received retail pricing. Data center users are also finding they have more leverage in flexibility and scalability at the negotiation table.

5. Investors will continue to clamor for data center REITs.

Data center REITs are boasting return on investment typically in the 10 to 15 percent range, an impressive performance compared with the single-digit returns of many other types of funds. High expectations for continued strong demand signal another year of bottom-line growth.

Globally, data center demand will continue to increase over the next 12 months, pushing operators to deliver more data facilities, faster and more flexibly than ever. As for Houston, the data center sector has shown resiliency and is positioned for growth. In 2016, the energy sector pulled back on data center spends as the price of oil dropped, affecting annual absorption. However, local providers displayed resiliency and maintained up time during rain and flash flooding in 2016. Looking forward, the Houston data center market is expected to gain traction as the energy sector cautiously increases its data center space and the healthcare industry evaluates outsourcing data center requirements.

Learn how these trends are playing out in key markets across the globe, download the 2017 Data Center Outlook.

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