Colocation, Enterprise, Hyperscale Data Center Capacity Seen Racing Against AI, Cloud Demands

Jan. 8, 2024
Confirmation of such trends came in the form of EQT Infrastructure's Jan. 5 announcement of a furtherance of its investment in EdgeConneX, the better to develop data centers for global hyperscale customers.

Per results from its latest Capacity Trends Survey, Uptime Institute reports that colocation data center providers' capacity growth "remains stellar" -- and quite a bit higher than enterprise-owned facilities, which the data saw also grow in capacity.

According to the November 2023 survey, four in five colocation providers (79%) reported that the capacity of their facilities is growing. Though down 8-points from the previous year, Uptime Intelligence still calls this "an exceptionally high percentage."

The survey also found that, among colo providers whose facilities are experiencing growth, the percentage of the growth rate clearly outpaced that of enterprise-owned data centers. 

According to Uptime Institute, "a whopping 72% of colo providers say their percentage growth rates are above 10% per year, compared to 51% for enterprise facilities."

Enterprise Facilities Still Hum Along

That discrepancy notwithstanding, Uptime Institute said its Capacity Trends Survey indicated that, overall, data center capacity remains on a sustained growth path for both enterprise-owned facilities and colocation providers.

For their part, approximately two-thirds (64%) of enterprise data center respondents from the survey determined their overall capacity to be growing, while only 11% said it was shrinking. 

While less than colo, that fully half of enterprise survey respondents at 51% reported their percentage rate of capacity growth as being greater than 10% a year is still significant, reckons Uptime Intelligence. 

Key Factors Boost Enterprise Capacity Demand

The survey zeroed in on key factors underlying the uptick in enterprise data center capacity demand. What key factors are driving this increased demand? 

Among enterprise operators whose facilities are experiencing growth, Uptime Institute said increasing resiliency (45%) was the top factor cited in the survey. Hybrid cloud strategies were the number two factor, cited by 37% of respondents.

Meanwhile, one in three enterprise respondents (32%) cited moving workloads from colocation facilities as a factor increasing the demand for data center capacity. 

Uptime Institute Research Analyst Douglas Donnellan remarked: 

"The data suggests enterprise capacity growth remains strong, as well as demand for higher densities. Growing capacity is also an important aspect of hybrid cloud strategies. However, a growing percentage also believe their current facilities won't be able to accommodate future growth without upgrading their infrastructure."

To wit, according to Uptime Institute, the percentage of survey respondents who said they can't accommodate higher power densities without upgrading or adding capacity to their facilities rose to 37% last year, a 9-point increase over the previous year.

Meanwhile, Uptime noted that the percentage of respondents who said they can accommodate higher power densities with their current infrastructure dropped 7 points in the most recent survey, to just 46%.

Digital Infrastructure Upgrade Investments Essential

As capacity growth rates for both enterprise-owned data centers and colocation providers remain strong, Uptime Institute noted that, as a result, a major issue now facing the industry is making the requisite investments in upgrading digital infrastructure to accommodate the increase in capacity demand.

Uptime contends that, "while moving workloads to third parties is one alternative to making on-premises investments, the higher costs of colocation and public cloud are factors limiting the proportion of outsourced workloads." 

By way of example, Uptime Institute noted that results from its 2023 IT Spending Survey showed that more than half of enterprises said keeping workloads in their corporate facilities was less expensive than colo or cloud, up by 10% and 3%, respectively, from the previous year.

Uptime Intelligence concluded, "Bottom line, whether you’re an enterprise facility or a third-party provider, one of the biggest issues you’ll likely face during 2024 - and beyond -is accommodating the unprecedented growth in capacity demand."

AI-Driven Hyperscalers, Plus Enterprise Capacity Demands, Nudge Data Center Capex

Concurrent with the industry's bottomless thirst for capacity, recently published research by Dell’Oro Group forecasts worldwide data center capex to rebound to 11% growth in 2024.

The analyst says this rebound will occur as select hyperscale cloud service providers return to an expansion cycle, and as "the spending freeze in the enterprise markets thaws," as similarly discerned by Uptime Institute's survey.

Dell'Oro previously projected worldwide data center capex for only 4% growth in 2023.

The researcher determined that a slowdown in general-purpose server and storage deployments weighed down the market last year, despite increased AI-related investments. 

"While Microsoft, Google, and Oracle have increased their data center investments in 2023 year-to-date, other cloud service providers such as Amazon and Meta have trimmed their data center capex,” explained Baron Fung, Sr. Research Director at Dell’Oro Group. 

“Our outlook for 2024 is more optimistic," Fung added.

He continued, "New AI applications such as generative AI will be a key investment driver in the cloud and enterprise. Furthermore, we anticipate demand for general-purpose servers to recover following a prolonged correction, and as customers make a transition to new server platforms that enable more efficient computing."

Dell'Oro Group's 3Q 2023 Data Center IT Capex Quarterly Report also forecasts server and storage system revenue for growth greater than 20% in 2024. 

Specifically, the report found that Dell led all OEMs in server revenue in 3Q 2023, followed by IEI Systems (formerly Inspur) and HPE. The data also found that white box server vendors gained 8 points of revenue share year-over-year compared to the OEMs. Network and physical infrastructure revenues were projected to grow by single digits.

Ultimately, Dell'Oro Group forecasts hyperscale cloud service providers  to increase their data center capex by 13% in 2024.

This figure may reflect findings from Synergy Research Group, who last fall reported that it expects hyperscale data center capacity to almost triple over the next six years, driven by AI demands.

Data Center Capacity Trends In Action

The above conclusions generally align with those of Data Center Frontier's Eight Themes That Will Shape the Data Center Industry in 2024 forecast, which foresees pricing for data center AI capacity trending higher this year, amid supply constraints for high-density space that can support AI workloads. 

A real-time indicator of such a trend came last week in the form of EQT Infrastructure's Jan. 5 announcement that it is furthering its partnership with EdgeConneX, the better to develop data centers for global hyperscale customers.

EQT acquired EdgeConneX in 2020, backed by funds EQT Infrastructure IV and EQT Infrastructure V. The data center provider has since more than tripled its capacity, expanding into new Asian, Latin American, and European markets.

“With the support of EQT Infrastructure’s global presence, industry expertise and dedication to sustainable growth, EdgeConneX together with this new initiative is well-positioned to be a leading provider of critical digital infrastructure worldwide," commented Jan Vesely, partner within EQT Infrastructure’s Advisory team. 

Vesely added, "EdgeConneX is a pioneering data center solutions provider, and its team has the proven track record and deep experience necessary to help lead this expansion and meet hyperscale customers’ needs around the world.”

EQT Infrastructure said its redoubled investment will enable expansion by EdgeConneX into new markets to fulfill its customers’ global data center capacity requirements.

EdgeConneX currently has 80 data centers in operation or development in more than 50 markets across North America, Europe, APAC and South America. 

The new partnership with EQT will build out hundreds of megawatts of new data center capacity to support future cloud, AI and other critical digital infrastructure requirements, said the companies. 

“We have always taken a customer-centric approach, focused on giving our customers the capacity they need, in the right configuration, in the right markets, at the right time," noted EdgeConneX CEO Randy Brouckman. 

Brouckman concluded, "Amid the rapid proliferation of data and compute, data centers are the critical infrastructure housing and connecting the technologies, the companies, and the end-users, thus enabling the future growth of the world’s digital economies. With the support of EQT’s deep local presence in critical markets around the world, EdgeConneX has expanded rapidly, and we’re excited about the opportunities this new partnership with EQT will unlock.”


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About the Author

Matt Vincent

A B2B technology journalist and editor with more than two decades of experience, Matt Vincent is Editor in Chief of Data Center Frontier.

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