The State of the Industry: Data Centers

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The first six months of 2018 revealed strong fundamentals and insatiable demand for data center space across regions. Data centers continue to be redefined as software-driven connectivity and blockchain are adopted. Providers are strategizing their offerings to meet the growing need for long-term flexibility, while providing the space and power needed from large users.

Five trends have emerged that you should watch for in the data center industry.

  1. Data center REITs, on the road to recovery
    After a rough few months to start off 2018, the stock prices of Equinox, CoreSite, CyrusOne, Digital Realty and other data center REITs have begun their trek back, with all either past or near 2018 stock starts. Based on H1 2018 stock activity and general industry growth due to accelerated demand by cloud users, data centers are poised for a strong second half of 2018 and long-term growth.
  2. NAREIT in review
    NAREIT’s June Investor Forum in New York remained positive in the face of larger concerns about the economy and overall geopolitical spectrum. Steady leasing momentum through the first half of the year delivered confidence for the group. In addition, continued interest in data centers for investment has boosted confidence. Compounded with robust demand across the globe, the sector will continue to outperform.
  3. SD-WAN redefining data center connectivity
    SD-WAN, or software-defined wide area network, is redefining connectivity by substituting the hardware-driven approach with a software-driven approach. SD-WAN improves efficiency and performance using its centralized management. SD-WAN’s market share is expected to increase over the next five years as cloud technology expands.Moving forward, clients are making networks more flexible and less expensive. Because of its cost-effectiveness, SD-WAN is broadly changing existing networks set up today in the data center. There will be investments and significant savings achieved, driving better communications and switching. As a result, this will potentially change the entire network landscape.
  4. Blockchain continues to be more than just hype
    As the popularity and general acceptance of blockchain continues to grow, more data and bigger data is being processed, driving continued demand for data center capacity. New companies that are popping up to service the blockchain industry are also driving increased demand across the U.S. While there is still some uncertainty surrounding its applicability, new demand shows that companies are attracted to its security and processing. The technology behind blockchain is attractive to many different verticals and has the potential to significantly change how transactions and data are shared and organized.
  5. Data center contracts modernizing, driven by changing user needs
    Large lease deals from five to ten years ago are starting to roll. The data center industry of today is different; applications have been virtualized, the cloud is an enterprise strategy, and flexibility and access to capacity has changed. Expect renewals, new leases and new service agreements to continually evolve and restructure to better fit how players today do business.

So far in 2018, we’ve seen an incredible amount of traction in the data center industry, even amid shifting fundamentals of the business. Blockchain continues to gain both global and business adoption as industries from healthcare and finance to real estate and automotive begin to experiment with the powerful platform. As a growing number of companies leverage blockchain, data centers will also continue to see growing demand from the technology as more and more data is being ground by more and more users.

Learn more about what’s going on in the data center industry. Download our 2018 H1 Data Center Outlook.

About the author

Mark Bauer is a Managing Director and Co-Leader with JLL’s global Data Center Solutions group that focuses on global representation providing real estate planning and execution of mission-critical data center relocations and expansions.