2023 Data Center Predictions
The data center industry is constantly evolving, making it challenging to predict the future with certainty. In this podcast, we explore several key predictions for the data center industry in 2023. These predictions encompass difficulty in delivery, pullback from larger users, lease price increases, international expansion, and growth in secondary markets. Understanding these trends will enable data center operators and businesses to better prepare for the future and seize new opportunities.
Difficulty in Delivery Data center delivery has become increasingly complex in recent years due to various factors. These include the need for larger power capacities, competition from industrial developers, and an unreliable supply chain. Bringing 100 MWs to a data center site requires not only securing sufficient power but also navigating challenges like competing sites and fulfillment issues.
Consequently, more data centers are being constructed in areas with existing infrastructure that can support rapid development. This heightened demand for such locations makes them harder to acquire for development purposes. The struggle to secure necessary resources and power leads to extended development timelines and potentially higher lease rates. However, this situation presents an opportunity for companies capable of swiftly supplying the market.
These challenges in data center delivery are likely to persist as the industry becomes more complex. Successfully deploying a data center entails understanding power requirements, securing land and resources, and effectively managing competition. Data center operators must be prepared to tackle these challenges head-on to achieve success.
Pullback from Larger Users While the data center industry experienced substantial growth in recent years driven by high demand from large-scale users, this growth is now beginning to plateau. Economic conditions are becoming a determining factor in the decision-making processes of these larger users, leading to a slight pullback in their demand.
Consequently, the data center industry is expected to experience slower growth in the coming months. Other sectors, such as banks, technology companies, and insurance companies, may also temporarily pause their data center commitments. These dynamics could introduce market fluctuations, and significant growth numbers may not be immediately realized. However, considering the significant demand observed in 2022, this slowdown is believed to be temporary.
Overall, this presents an opportunity for data center companies to adjust their strategies and focus on long-term growth plans that can help them navigate potential downturns. By engaging in careful planning and analyzing current market trends, data center companies can make informed decisions that benefit their businesses and ensure sustained success in the future.
The key takeaway is that although there may be a temporary slowdown in growth over the next few months, it does not indicate a disaster for the industry. With strategic planning and a comprehensive understanding of market conditions, data center companies can prepare for potential downturns and capitalize on future growth opportunities.
Price Increases on Retail, Wholesale, and Hyperscale
Lease pricing in the data center industry has seen a noteworthy shift this year, with prices increasing instead of following the long-standing trend of decreases. This departure from the norm is expected to continue in the foreseeable future. Some major operators have even tied rent escalations and future price hikes to consumer price index (CPI) rates at the retail level. This approach indicates that the industry will likely maintain its current trajectory.
Additionally, the data center industry exhibits inherent inertia due to the significant time and capital required to build data centers. This further supports the expectation of continued increases in leasing rates as the industry adapts to the evolving landscape. To remain competitive, data center operators must stay abreast of the latest technological, financial, and management techniques.
Companies Expanding Internationally
In an increasingly interconnected world, many companies are turning to international markets for rapid expansion and long-term success. Merger and acquisition (M&A) strategies prove highly effective in this regard, as corporations tap into the expertise and resources available in international markets, where local knowledge and contacts play a crucial role in achieving success. Establishing relationships with utility providers, navigating international regulations, and understanding cultural nuances pose significant challenges for newcomers to these markets.
Moreover, developing a global footprint allows operators to offer consistent products and experiences to large customers across multiple locations worldwide. We anticipate an increase in M&A activities in 2023 as companies strive to become truly global operators.
Secondary vs Primary Market Growth
In recent years, the demand for data center services has soared. To meet this demand, the industry has experienced accelerated growth in secondary markets, shifting away from traditional primary data center markets. Secondary markets encompass remote locations that have yet to witness substantial data center development.
Notable examples of these secondary markets experiencing increased growth include Minneapolis, Salt Lake City, Austin, Columbus, and Portland. The appeal of secondary markets lies in the availability of power infrastructure, improved connectivity, and lower costs compared to primary markets. Given the escalating demand for data center services, the growth in these secondary markets is expected to continue throughout 2023.
Closing Thoughts
All in all, 2023 holds great promise for the data center industry. It is now more crucial than ever for data center operators and businesses to stay informed about these trends and developments to maintain competitiveness and seize new opportunities. By doing so, they can ensure success and drive the industry forward. For in-depth analysis and quarterly updates on global data center markets, be sure to explore our Insight tool.
