By Edward Henigin, Chief Technical Officer, Data Foundry
The COVID-19 pandemic has been a highly disruptive force in the global market, changing the way businesses, communities and economies operate today — and perhaps into the future. While uncertainty has defined this challenging time, trends have been developing in the wake of the virus’ worldwide impact. One of the most prominent trends has been the shift to remote and digital means of working, communicating and learning.
Across nearly every device category, in-home data usage has seen an increase in the first three months of 2020 compared to the same period in 2019. This year, the two-week period between March 1 and March 17 alone exhibited a 34 percent increase in smartphone data usage compared to the previous year’s usage during the same period. As a result of social distancing and quarantine protocols, many businesses have reduced onsite work or even shut down their locations in favor of work-from-home options that incorporate video conferencing platforms or other virtual applications.
Edward Henigin, Data Foundry
Today’s increased online dependence creates a focus on digital infrastructure, and data centers are only growing in importance (and in demand) as they become more widely recognized as crucial components of a resilient response strategy.
This new demand means that the market for data centers is undergoing its own changes. COVID-19 is impacting how the world’s data centers are built and used for evolving demands, and analyzing these changes is key for understanding what the future of digital infrastructure may look like.
An Evolving Business Model
Emphasized reliance on data centers has made many organizations keenly aware of how their IT infrastructure can be changed to better suit their business continuity plans or their expanded virtual demands. As we move through this pandemic, it’s becoming clear that data center demand will only increase — for a number of reasons.
When we examine cases in which organizations are looking to pare down or eliminate office space while shifting to remote work, the on-premises data centers they may currently host within their locations will need to find new homes outside of commercial office space. Today, many on-premises data strategies are being shed in favor of a colocation-based approach, which offers an array of advantages that are indispensable in this situation.
Colocation allows businesses to offload the complexity of managing and maintaining the IT infrastructure and grants access to expert insight and services that can make staying in touch with mission-critical data easier. Purpose-built data centers are classified as critical facilities and receive special consideration from the government to maintain operation during a pandemic. On the other hand, office buildings (which house many on-premises data centers) don’t get the same treatment, which means that many are inaccessible. Colocation also enables enterprises to keep their teams safe by eliminating any necessary trips to onsite facilities. While data center strategies may be shifting, demand for off-premises facilities is still strong for these reasons.
During this cycle, the Dallas area has emerged as a leading market for data center development and absorption due to its exceptional job growth, land availability and cheap power supply. Pictured is KDC’s 130,000-square-foot project in Richardson.
Data center absorption is also being bolstered by economic disruption. Businesses are slowing down, delaying capital projects and cutting budgets in the face of decreased revenue. Uncertainty about levels of demand in the future is making projects harder to approve. Streamlining and automating has become a priority. These factors typically combine to create increased data center utilization.
Online work, financial changes and increased demand for data center solutions that come with them align with larger trends that have already been occurring across some industries. For instance, commerce and entertainment have been shifting online for around two decades now.
COVID-19 is only accelerating the pace of this evolution — all facets of which point to more data center utilization. Now, the importance of the data center in the flow of digital business, entertainment, learning, communication is being reinforced, and data center demand is likely to rise in both the short and long term.
Next Expectations
While we can see and predict how absorption rates for data centers are fluctuating in reaction to COVID-19, it’s more difficult to say how new projects, facility developments or data center closures will change. Nevertheless, data center providers are attuned to changes in the market, and they will be watching closely to see how demand and vacancy rates change in the coming weeks, months and even years.
The composition of data center clients has been shifting over time, even before COVID-19, moving toward larger clients with expanded footprints. This, in combination with the widespread acceleration of cloud adoption, offers insight into how data center development should continue or change. This trend toward hyperscale cloud clients will likely continue to accelerate despite current events, and these clients will continue to favor operators that build larger facilities that support hyperscale workloads.
At the same time, as mentioned above, data center spaces in commercial office real estate have been decreasing over time, and COVID-19 is accelerating this trend, so shuttering these data centers has been happening. Otherwise, growing data demands mean that only the oldest colocation data centers are getting shut down, and even that is still rare. Given the overall upward trajectory of data production and consumption, this is unlikely to change even during a global pandemic.
In Summary
In the midst of global challenge, digital applications are becoming even more central to daily life, and the dependence on these online capabilities is not likely to go away once the pandemic fears are gone.
The data center will continue to grow in importance as its role in business continuity and IT empowerment is highlighted. In an era when data protection, IT accessibility and disaster recovery are critical, data centers are proving themselves as an enduring focal points of today’s and tomorrow’s worldwide digital landscape.
— This article first appeared in the June 2020 issue of Texas Real Estate Business magazine.