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Data Center Outlook 2017: Tech Trends Driving Demand

The Dallas and Phoenix metro areas will be top data center markets again next year, according to real estate firms JLL and CBRE.

Last week here on the Aligned Data Centers blog we shared 2017 tech trend predictions from Forrester, Gartner, and IDC. We talked about IoT, cybersecurity, the (disappearing?) data center, and digital disruption. How will data center providers respond to these trends? To help us answer that question we turned to real estate advisers JLL and CBRE and their 2016-17 data center market forecasts.

Overall, data center demand in 2017 will be driven by:

  • Accelerating cloud adoption, which will double the size of the data center industry by 2021 (JLL)
  • A move toward the edge, with companies “bringing data closer for greater reliability and speed” (JLL)
  • The “realities” of global climate change, which have “spurred increasingly effective energy efficiency solutions” (JLL)
  • Data center decision makers who are “using increasingly sophisticated criteria when they shop for location, space and power” (JLL)
  • Continued high demand for sale/leaseback, colocation, and managed services among enterprises who have over the past five years “migrated quickly from owning data center properties” (CBRE)

The 2017 Dallas data center market

“Demand in the Dallas area continues to come most robustly from financial services, insurance, healthcare, and technology,” writes JLL in its outlook report. “Continuing headquarter relocations and regional expansions are also driving demand.” For data center users, JLL predicts “aggressive pricing and ramp schedules” and “new options for powered shell facilities.”

A surge of demand for data center space in the Dallas area (which includes Plano) has the region hitting record levels of leasing velocity, but CBRE brokers say the biggest boom could still be yet to come. “We are predicting Dallas-Fort Worth to do another 40 megawatts this year, but next year could be stronger from the pipeline we're seeing in the market,” Brant Bernet, senior vice president and leader of CBRE's data center team, told the Dallas Business Journal. That’s not surprising, given that the Dallas area has long been a top data center market (read 7 reasons why).

The 2017 Phoenix data center market

Demand for Phoenix data center space comes in large part from West coast companies looking to move to a lower cost, less disaster-prone location without increasing latency significantly. The largest user base in Phoenix is the technology industry, though there is strong demand in the banking & financial services and retail & ecommerce industries as well. “Market trends demonstrate an increased absorption by cloud and Software-as-a-Service (SaaS) companies,” writes JLL in its outlook report. “This trend has been a result of the migration by enterprises away from traditional data center build-outs as they transition their infrastructure and software needs toward a public or private cloud environment.”

JLL calls Phoenix a “user-favorable market” that “provides competitive pricing and flexibility as new supply is delivered.” The real estate firm called out Aligned Data Centers’ new facility specifically, saying that new contiguous space will be available in Phoenix when the first phase of our 550,000 square-foot, 62 MW data center opens. And a trend that aligns well with our offering, “tenants are beginning to prioritize flexibility for expansion or reduction in square footage and power density,” according to JLL.

Like Plano, Phoenix has long been a top data center market (learn more about why).

Bottom line

With the data-eats-the-world trends we described last week, demand for data centers will continue to rise. But as the pace of innovation continues to accelerate, prospective colocation tenants would be wise to look for data center providers who can innovate right alongside them, topping the data centers lists not only next year, but well beyond.

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