How 5G Is Poised To Reshape Data Center Development

The expansion of 5G networks is likely to significantly expand opportunities for data center builders, particularly in areas outside of dense, first-tier markets.

Although relatively nascent — 5G isn’t yet the prevailing network for mobile phones and other devices — technology experts are expecting the next-generation wireless standard to help generate a bumper crop of connected devices, from car and home appliances to industrial and enterprise applications.

“[5G] goes way beyond the phone, and most of what we’re going to use it for may not have been invented yet. So that gets very exciting to me in terms of opportunities in the data center space,” said Pat Lynch, senior managing director in CBRE’s data center group.

Currently, most data center absorption in the U.S. is concentrated in dense, first-tier markets like Northern Virginia and Silicon Valley. As of December 2020, Northern Virginia accounted for a whopping 61% of the 457 megawatts of data center capacity under construction in primary markets, according to CBRE.

Over the next few years, however, the ongoing rollout of 5G is expected to dramatically increase data processing demand in rural and suburban areas, along with a need for data centers closer to those end users. But they won’t necessarily look like the large hyperscale campuses and colocation facilities that populate larger markets.

“This creates an opportunity for new kinds of edge data centers including modular ones like the EdgePresence.com platform that DataBank recently invested in,” said JP Laqueur of data center provider DataBank. “They provide the same secure, redundant colocation space that we have in our larger facilities, but in a compact footprint that can be located at the bottom of a cell tower and turned up in days or weeks rather than months.”

With capital pouring into digital infrastructure, there are already signs of a land grab among operators of cell towers. Wireless REIT SBA Communications, for example, expanded its data center portfolio with an acquisition of JaxNAP, a large data center in Florida, augmenting an earlier acquisition of Chicago-based New Continuum Data Centers. Even more recently, a crop of investment groups eyeing cell towers, fiber networks and data centers have formed, with some tapping public markets to ride the digital infrastructure boom. Major firms like Microsoft are developing flexible, modular data center designs for edge uses. Equinix, likewise, rolled out a new prefabricated modular data center design in Bordeaux, France.

The federal government is also pouring money into initiatives like rural connectivity, and could soon approve a bill that would allocate around $90B to the goal of blanketing the country with high-speed fiber infrastructure.

As to where pockets of data center demand could crop up in the U.S., looking at latency between various destinations could provide some clues.

“[With 5G] you’ve got all kinds of applications requiring super-low latency — 5 milliseconds or less round trip for certain kinds of application, and many need between 10 and 20 ms,” said Michael Morey, CEO of Bluebird Networks, which operates 10,000 miles of fiber and two data centers in the Midwest. “That means the applications people are interacting with are going to be physically closer to the end users...and those users are getting further and further dispersed.”

“If the end user is in Bentonville, Arkansas, it’s not going to be able to get from Bentonville to Chicago in 5 ms,” on current infrastructure, Morey added. Last month, Bluebird Networks announced an expansion of its fiber network, which is concentrated in and around Illinois and Missouri, to support 5G deployments.

Although 5G is still in its early stages, “I think we’re inside of two years” from the technology taking hold in daily life," Lynch said.

“There’s going to be a need for edge data centers, just given the volume of people and amount of content,” he said. “Highly populated centers will need more and more of these edge facilities, and conversely, smaller suburban area … will need that connectivity as well in order to function.”

“It’s going to have a meaningful impact on real estate,” Lynch added.