The data center industry is exploding with growth. Here in the Greater Boston area, demand is being driven by companies who want their data in this region because it helps their applications perform better or because the data is highly proprietary. Unlike in many other markets, the demand is relatively balanced among four key sectors: universities, life sciences, technology, and financial services.
Supply meanwhile remains fairly static. As a result, well-known players like Digital Realty are less willing to deploy capital in this market given the slower rate of absorption. That is, however, creating an opportunity for smaller, more innovative data center developers to fill that gap.
While that may mean it’s a slower market, it is also a very stable market. Once tenants move in, they typically don’t move out, and they also tend to have very high credit. For financially-based data center investors looking for near-full properties with good returns, they continue to display significant interest in Boston. Whereas in other markets the trend tends to be to buy properties with future upside at a low price and sell high, locally, investors are buying high and selling even higher. 230 Congress Street in Boston and 34 St. Martin Drive in Marlborough are a few of the more notable data center sales over the last 12 months.
That all said, what that all adds up to is a user favorable market for the foreseeable future. Despite being one of the regions with the highest energy costs in the country, over time, pricing will remain stable, often providing tenants with a price reduction on a renewal.
Looking beyond the Greater Boston region, there are four key trends driving growth in the data center market across the US:
- Cloud adoption acceleration is doubling the size of the data center industry: Most companies have at least something in the cloud, whether that’s Salesforce.com, or their email. Interestingly, the data centers in this market doing the most significant amount of new business are those that offer cloud services and allow companies to switch from colocation to the cloud over the course of their contract.
- Data center companies are dispersing data across locations: Companies are putting the data closer to the end user so it doesn’t bog down backbone networks. Netflix is a perfect example of this. Whereas initially they were passing data to Comcast through one central location in Philadelphia, they are now doing so via more than 25 locations spread across the country.
- Data sovereignty laws are redrawing the global data center location map: This is increasingly becoming a critical issue that companies grapple with. While it isn’t a huge factor in this market, it is impacting local companies with an international presence who need to take out additional space in those other markets to comply.
- Climate change is shaping data center legislation and technology: We’re ultra in tune with power costs here because it’s so expensive and all fossil fuel generated. As a result, there’s a large focus on being more efficient with equipment and getting renewable energy for data centers.
For more on the local and national data center market, I encourage you to download our complete 2016 North America Data Center Outlook and please feel free to contact me with any questions you may have.