Data centre development underlies almost every tech investment trend of the future: cloud adoption, machine learning, the internet of things (IoT) and robotics all generate exponential volumes of data that drives the need for data centre capacity. Global data centre traffic more than quadrupled between 2015 and 2020, according to the International Energy Agency . This juggernaut of demand for data storage and computing systems may mean the sector becomes one of the few to emerge unscathed post-Covid-19 as more economic activity shifts online.
Financial markets have seen a surge in fund managers sheltering investment in data centre stocks, signalling confidence in the sector amid the global pandemic. US giants Equinix and Digital Realty, which lead the sector, have seen their combined market value rise by one-fifth since January to more than $100bn, outpacing the S&P 500 benchmark of US blue-chip companies, which fell 5% in the same period.
A confident mood
This market confidence reflects what is happening on the ground, according to Digital Realty’s chief financial officer Andy Power, who says demand has remained steady across the six continents and 21 countries in which the firm’s 275 data centres are located.
“From large cloud service providers – some of the biggest companies in the world – which plan their global footprints years in advance to the more fickle enterprises, which tend to over-hire or over-fire when any kind of blip in the economy happens, the demand trends have remained steady,” he adds.
Led by this customer demand, the firm announced in June that it will build two new data centres in Queretaro, Mexico, with a local partner for a yet unnamed large global cloud provider.
“Going into Mexico in the middle of this crisis speaks to our views on the demand trends in the near, medium and long term,” says Power.
The same month the firm broke ground in a virtual ceremony on its first data centre facility in South Korea, the country’s first carrier-neutral facility, scheduled for completion in 2021.
A similar picture emerges from rival firm Equinix, which has 32 expansion projects under way globally. The firm recently announced a $750m acquisition of 13 Canadian data centres to expand its global portfolio of more than 210 such facilities further into North America. According to UK managing director Russell Poole, the company hasn’t changed course since the onset of the Covid-19 pandemic and will continue with its existing customer-led expansion plans, albeit under different conditions and protocols.
“Opening a data centre is at least a two-year process, and we do a lot of work around modelling demand and measuring capacity so we can see the demand trends,” says Poole, who adds that the sector’s growth drivers continue to exist despite the current circumstances and, in some cases, such as cloud adoption, have even been accelerated by the pandemic.
Aggressive cloud cover
Gartner analyst Phil Dawson says the Covid-19 crisis will prompt more aggressive cloud adoption, which will accelerate the need for more cloud data centre capacity.
“What is really interesting though is the colliding worlds of work and home, whereas data centres have traditionally been built near offices in a metropolitan ring,” says Dawson. “If we are all working from home they can be more distributed as well – they need to be nearer people not offices. And it could be South Korea, an Equinix or Amazon web services building in São Paolo, South Africa or India, it will be the same issue.”
Dawson adds that after 20 years of sector consolidation there may be a growing market in micro data centres to accommodate the post-Covid-19 enterprise landscape.
However, Poole says that working from home on its own would not be enough of a factor to change the geographical distribution of data centres or disrupt the sector’s continuing expansion.
“An increased use of home working technologies such as Zoom and Microsoft Teams can be managed from existing data centre locations; what you need is bigger pipes, more computer processing power and storage capacity,” he adds.
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Even if data centre configurations and geolocations were to change, what is more relevant to the sector’s growth is the relentless requirement for more capacity and connectivity created by the domino effect of technological innovation alongside the proliferation of connected devices, which is expected to reach 75 billion within five years, according to Power.
“One application opens the door to another – for example, from Google Maps to Uber – then [the issue is] how you pay for it, and so on,” he says.
A growth story
What makes the data centre sector so resilient to macroeconomic trends is that it lies beneath multiple vectors of growth within the technology industry.
“Our industry benefits from the secular tailwinds of growth from technology outsourcing to more advanced technologies such as IoT, artificial intelligence, autonomous vehicles and virtual reality,” says Power. “That has been the case in both good economies and bad economies.”
With some reports suggesting that the data centre sector market value is predicted to continue to expand by more than 16% a year over the next five to ten years, it is expected to be one of the more resilient foreign direct investment sectors, according to NS Media Group chief economist Glenn Barklie.
“It is a good time for companies to be reassessing their strategies – although these may differ between sectors, one thing they all have in common is increased adaption of streamlining technologies,” he says. “This requires data and power.”
If historical precedent is anything to go by, the global pandemic will push IT further up the enterprise agenda into the boardroom. Power says the 2008 financial crisis was a boon for the sector, spurring many multinationals to focus on their core competencies and outsource their data provision.
“That was the start of a wave, added to which cloud computing, incremental technology and innovations have made digital transformation a business priority,” he adds.
All indicate that the juggernaut of demand for data storage and compute power means the sector’s growth is unlikely to stall, even as it meets the global pandemic head on.