Today we continue our inaugural Data Center Executive Roundtable, a quarterly feature showcasing the insights of thought leaders on the state of the data center industry, and where it is headed. In today’s discussion, our panel of four experienced data center executives – Chris Crosby of Compass Datacenters, Rob McClary of FORTRUST, Douglas Adams of RagingWire Data Centers, and Harold Simmons of United Metal Products – will examine trends in geographic data center markets.
The Evolution of Data Center Markets
Data Center Frontier: In recent years the data center business has seen solid growth in geographic markets outside the traditional major data hubs. What are the most promising markets, and what trends will guide where we see growth in regional markets?
Robert McClary: In the past, data centers were traditionally put in places close to telecommunications infrastructure, including modified telco hotels, office buildings, or general use commercial facilities that were in close proximity to connectivity were being inaccurately labeled as data centers. Now that connectivity is becoming more widely accessible and available, the trend I see happening is that data centers are becoming purposefully designed and built to a mission, or “fit for purpose” rather than a convenient location.
People are calling any room with servers in it a data center. We need to define the mission of a data center. We also need to define the criteria a data center has to meet in order to be called a data center. A data center’s mission should be to create reliability, mitigate risk, and provide uptime for the technology and applications that it enables.
As data centers become aligned with their true mission, you will see data centers being built in areas sheltered from natural disasters. Additionally, I believe data centers will start gravitating more towards sources of energy and cooling than connectivity. You will also see data centers emerging in markets such as the Midwest and Southwest that have lower energy and real estate costs along with less geographic risks. Areas that are more prone to the risk of natural disasters, such as the coasts, will most likely see a decline in data center builds. There is too much capital involved in designing and building a data center to risk putting them in these disaster prone areas.
Douglas Adams: The reality is that the top data center markets are top markets for a reason. They have the critical mass and optimal mix of robust fiber and telecommunications, reliable and cost effective utility power, experienced data center staff, and the economic incentives so that the data center ecosystem can thrive.
Once momentum in the data center market is achieved, it’s hard to stop. The top 15 data center markets globally represent 70 to 80 percent of global data center sales. The top six U.S. markets represent over 70 percent of US sales, and the US represents more than 50 percent of the world’s data center sales. In the data center business, it is all about location, location, location.
Regional data center markets will develop as a hub and spoke to top markets, not as a replacement. There is growth in regional markets, but it is off of a small base.
RagingWire’s strategy is to have a significant presence in the top data center markets in the United States. We have close to 1,000,000 square feet of data center space in Ashburn, Virginia and Northern California, and we have broken ground on an additional 2,000,000 square feet in Ashburn as well as a new 1,000,000 square foot campus in Dallas, Texas.
Being a part of NTT Communications not only provides our clients AAA+ financial security, but it also allows us to provide data center space globally as part of the 140 locations operated around the world by NTT Communications under the Nexcenter brand.
Harold Simmons: Assessing the potential for future markets is best viewed on a continuum that is affected by a variety of variables. A few years ago, Iceland was being heralded as the next great place for data centers.
However, when Eyjafjallajökull erupted in 2010, people began to think differently about Iceland as a strong data center market. In the United States, in Washington state the towns of Wenatchee, Moses Lake, and Quincy all experienced tremendous growth and became major data hubs primarily as a result of very cheap power and an attractive business atmosphere from a tax perspective. Other municipalities have arisen who are also offering tax incentives and this has continued to change the market.
One of the most intriguing markets for future growth is the Greater Phoenix area. A couple years the Arizona Data Center Coalition helped create legislation that was passed that offered significant tax breaks for data centers. There are at least five factors that have positioned Phoenix as a key area for future growth:
- A friendly tax environment.
- The relatively cheap cost of power.
- A low propensity for natural disasters.
- Geographic location relative close to California; and
- An overall favorable climate for data center operations.
Chris Crosby: This is an interesting question since I think that the stratified architectures that we discussed in Question 1are going to change the way that we look at the marketplace in the near future. By this I mean that how we define a Tier 2, 3 or 4 market will begin to fade away in the next 3 to 5 years. Currently, we still look at markets through the old lens the “build it and they will come” mindset that leads us to look at a market like Phoenix and say “boy, they sure are building a lot of data centers there so that must be a Tier 1 market.”
I think that in the very near future, the location of customers and the latency needs of the applications they need to support will determine where they want their data center(s) to be located. If that mean that’s the facility has to be located in Salt Lake City or Cheyenne, Wyoming, then that’s where they are going to want it. In other words, the edge will be wherever they need it to be, and not in some place like Boston just because some provider has a 50,000 square foot facility there. Although this won’t stop some industry analysts and pundits from continuing to try to put markets into specific “boxes”, these artificial distinctions will mean less and less to actual end users. That said, of course, most service provider business models work at scale only – meaning putting a megawatt in Des Moines doesn’t make economic sense.
Our first focus has been on the customer, and that focus has driven our market selection. With our ability to go anywhere, we go where the customer’s latency and convenience requirements dictate. That’s driven our market approach to date, and I don’t see that changing.