In 2016 the data center market saw big deals from major players, new economic and regulatory policy, and the wild card that is strategic cloud adoption. As JLL’s latest Data Center Outlook reveals, there are several key trends in particular to watch in 2017. Below we examine some of those key US trends and their impact here locally in Greater Boston.
US Trend #1: Bold M&A will disrupt the playing field while raising barriers to entry for newcomers to join the game.
Local impact: The first part of that statement couldn’t be more true here in Boston. CenturyLink’s recent divestiture of nearly 60 data centers includes three facilities here locally in Waltham. In addition, their subsequent acquisition of Level 3 Communications also impacts several data center facilities in the Boston/Cambridge region. These moves are bound to impact both tenants and landlords in the local data center market. From the tenant perspective, new owners are likely to aggressively invest in state-of-the-art, energy efficient facilities which should give customers more and better choices than they’ve had before in Boston. From the landlord perspective, it stabilizes assets that have been unstable for over a year.
That all being said, this doesn’t necessarily mean that newcomers will struggle to enter the game here locally. In fact, Berkeley Investment’s development of a 60,000-square-foot data center as part of the 400,000-square-foot multi-use Exchange Two Hundred in Malden is a perfect example of why this isn’t true. Many customers are getting tired with data centers being flipped from owner to owner and are seeking out smaller, more dedicated providers with a local presence like Berkeley. While large international companies with multiple facilities around the world can benefit from the consolidation of the market and the ability to work with a single provider across facilities, that isn’t always the case, especially in our region.
US Trend #2: Shifting global policy and economic trends, combined with the new presidential administration, will spark important questions about sovereignty and taxation.
Local impact: While these impacts may be a little further down the road, we are likely to see some impact here in 2017 locally and across the country. For starters, interest rates are expected to rise under the Trump administration and data centers are particularly sensitive to rising interest rates. This could slow down capital expenditure, tightening the market and leading to an increase in pricing, which would benefit data center owners but hurt data center customers.
Meanwhile, the anticipated repeal of Obamacare could also have a significant impact on the industry. Obamacare enhanced the growth of healthcare cloud computing eliminating the requirement for certain states to house their medical records within state boundaries as long as the data remained in the United States. Without Obamacare, these requirements could be put back in place meaning certain states would need to use data centers within their state for sensitive medical records. Lastly, the deregulation of energy could ultimately reduce the cost of power which would be beneficial to our region.
US Trend #3: Data still needs a home but cloud adoption is shifting which data centers host it and where.
Local impact: Some major cloud providers are anticipating they will need to triple infrastructure by 2020. Generally, that will have the largest impact on some of the major markets like Northern Virginia, where the majority of those providers are housed. However, as more services move to the cloud, the need for data centers near where the people are using the data is going to grow. This will impact larger cities like Boston, NY and Philadelphia. The net result of more things moving to the cloud will include growth in markets like ours but in a different way. While fewer companies may be leasing space for their own data as a result of this migration, cloud providers will increasingly need more space in our region and other populated regions to control the edge of their network, where people are actually accessing the data.