'Inexhaustible Demand': How 2020 Changed The Data Center Business

In a year of rapid change and heightened uncertainty, the data center industry changed in ways that could resonate for years to come.

As the coronavirus pandemic took hold, a widespread shift to remote work and school placed new demands on cloud computing and, in turn, data center infrastructure. For many in the business, it felt like years of change packed into a matter of months. 

“2020 has seen the realization of digital transformation sooner than many expected. From Microsoft adding 12 million users to its Teams platform in one week to the explosion of AI and machine learning, we've seen a massive uptick in utilization across the board,” Aligned CEO Andrew Schaap said.

Along with that increase came a boom in data center investment and development. According to Synergy Research Group, data center-related M&A crossed the $30B mark with a number of other deals still in the pipeline. The flurry of deal activity “is being fueled by an almost inexhaustible demand for data center capacity,” said John Dinsdale, the company's chief analyst.

It’s no surprise that 2020 was a banner year for data center development and leasing. According to CBRE, wholesale data centers in primary U.S. markets recorded 134.9 megawatts of net absorption in the first half of 2020, and more than 373 MW was under construction in those markets.

Northern Virginia, the largest data center region in the world, has 239 MW under construction; Atlanta has the second-most inventory under construction, at 28.5 MW. Phoenix has 28.1 MW under construction, and Silicon Valley has 24.6 MW. 

Meanwhile, some enterprises are seeking shorter lease terms as they re-evaluate their IT needs in the wake of the pandemic, according to CBRE. Hybrid models, where some workloads are handled on-site and others in the cloud, are gaining traction, according to Prime Data Centers CEO Nicholas Laag.

“Large enterprises were already migrating many workloads to the cloud. The concept of a distributed workforce has accelerated that adoption, as well as the decision to deploy hybrid cloud models and consider sale-leaseback scenarios to reduce overhead and focus on their business,” Laag said. “Prime Data Centers is moving full steam ahead with our development plans ... we are building wholesale colocation properties that can be managed with a minimum number of on-site staff.”

The twists and turns of 2020 “reminded us to be adaptable,” said Joe Stefanov, city manager of New Albany, Ohio, which has emerged as a data center hot spot in the Midwest.

Likewise, data center providers found themselves scrambling to adjust to their customer’s needs while navigating the realities of remote work themselves. With no clear end date to the pandemic in sight, it’s likely that some degree of remote work will outlast 2020, and a need for remote management of IT assets to continue. 

“That may mean embracing technology by implementing things like electronic plan review or virtual construction inspections to keep key construction projects moving forward. Or it may mean going old school, like having partners literally drop plans for review into bins at Village Hall,” Stefanov said.