Data Center Outlook
A review of the industry's latest trends and what to expect in 2021
Insatiable demand for data centers surged in 2020. Absorption reached 619.3 MW in the United States and 201.2 MW in Europe. Despite initial slowing and leasing backlogs amid the pandemic, enterprise colocation demand picked up in the second half of the year.
Absorption (MW) by U.S. market, year-end 2020
Absorption (MW) by EMEA market, year-end 2020
The construction pipeline reached near-record levels in 2020, with 611.3 MW under construction in the United States. Northern Virginia has 326.0 MW under construction, an increase of over 400 percent since 2019. In Europe, 83.0 MW of new supply was added to Frankfurt inventory in 2020. The market currently leads the region with 117.8 MW under construction.
M&A activity and operator investment remain robust. Global M&A activity in the data center sector surpassed $30 billion as of November 2020, including Digital Realty’s recordsetting $8.4 billion deal with Interxion. The top data center REITs continued to outperform other sectors throughout 2020 amid the pandemic.
JLL identified five key themes in the year end of 2020
1. Insatiable cloud demand across the globe
In North America, cloud dominated demand in 2020 and will continue to expand in primary markets in 2021. Atlanta, Phoenix, and Chicago recorded large land purchases where new facilities will meet cloud demand.
2. Despite initial slowing and leasing backlogs amid the pandemic, enterprise colocation demand picked up in the second half of 2020
While cloud demand thrived in 2020, enterprise level demand slowed as overall IT spend declined globally. According to Gartner, overall IT spend declined by 5.4 percent due to the pandemic’s impact on organizations’ budgets. However, re-entry and vaccination rollouts could lead to a strong rebound in 2021 as cloud migration keeps momentum.
3. M&A activity and operator investment remain robust
Investment activity has grown on several fronts. It has increased on a speculative basis where cloud demand has been strongest, secondary markets where cloud demand has increased, and new international markets.
Total YTD returns by sector, as of November 30, 2020
4. 5G demand expected to burgeon in 2021
Communications service providers are prioritizing spend on 5G capabilities. While Gartner projected that overall infrastructure spending would decline by over four percent in 2020, 5G was projected to nearly double.
5. Sustainability not slowing down
Customers continue to demand green solutions from operators to help achieve their goals of 100 percent renewable energy. Some estimates forecast the global green data center market to grow by nearly $45 billion by 2024.