Data Center Sector Driven by M&A, Cloud Demand

By Scott Baltic, Contributing Editor

Bo Bond, managing director & data center solutions co-lead at JLL

In the first half of this year, data center construction in North America is up an amazing 43 percent from 2016, and industry consolidation powered a $10 billion surge in mergers and acquisitions (M&A) in the first half of 2017, according to “Shifting clouds, surging M&A,” the latest Data Center Outlook | North America report from JLL.

Though absorption fell from 249.1 MW in the first six months of 2016 to 182.1 MW in the half-year just past, the report called the current absorption pace “normal” and “sustainable.” It also pointed to pent-up demand from Fortune 1000 companies and enterprise users and predicted they will likely lease up “moderate to large chunks” through the rest of the year.

Cloud adoption leads absorption in nearly all North American markets; 11 of 18 major data center markets show 30 percent or more of their user demand coming from the cloud. Northern Virginia, Austin/San Antonio and Chicago are leaders here, with nearly three-quarters of their demand from cloud users.

On the M&A front, just four transactions accounted for more than $13 billion, a record-breaking amount: Digital Realty acquired DuPont Fabros ($7.6 billion); BC Partners, Medina Capital and CenturyLink formed Cyxtera Technologies ($2.8 billion); Peak 10 acquired ViaWest ($1.7 billion); and Digital Bridge acquired Vantage ($1 billion). And that’s probably not all, because JLL expects “large-scale providers to continue on acquisition sprees” in the second half of the year.

“While M&A activity is surging, data center leasing has quietly returned to normal in the U.S.,” Bo Bond, managing director & data center solutions co-lead at JLL, said in a prepared statement. “Data center users are now turning their attention toward filling out their global data center footprint and making technology investments to keep them ahead in a rapidly changing industry.”

Investments for the future

Mark Bauer, Managing Director and Data Center Solutions Market Director at JLL

Top data center users interviewed by JLL identified the hot topics in the industry and how these affect investment decisions:

• Efficiency programs will install automation to make data center operations more valuable to the core business.
• Artificial intelligence will help reduce human intervention in data centers and significantly cut time to restore operations in the event of a failure.
• Further, AI will make greater use of predictive analytics on-site.
• Processor technology investments will improve cooling and reduce energy usage.

“Data center users are investing in systems that will allow them to use their servers more efficiently and effectively,” Mark Bauer, managing director & data center solutions market director at JLL, added in the prepared statement. “Essential technological advancements like artificial intelligence to anticipate failures and automation to reduce response time are what the industry needs to keep up with today’s digital consumer.”

Specific local markets highlighted by the report include Northern Virginia, where rapid supply growth coexists with low vacancy and pent-up user demand; Dallas/Fort Worth, which saw a 50 percent spurt in absorption; and Montréal, where low power rates is one of the factors enticing major interest by large cloud providers.