Data center market in 2013: analysts’ predictions

451 Group: expect more construction, but do not expect supply to catch up with demand

22 December 2012 by Yevgeniy Sverdlik - DatacenterDynamics

Expect to see a healthy colocation and wholesale data center market in 2013. That is according to a recent report by the 451 Group, a market-research firm.

Demand for commercial multi-tenant data center space in 2013 will continue and even increase in a lot of areas, Kelly Morgan, research manager at 451 Research and one of the report's authors, said.

Many big decisions – such as building a data center or leasing out a big chunk of data center space – were deferred in 2012 until the US presidential election passes and the “fiscal-cliff” situation is resolved. Both of these factors have caused worries about an economic slow-down, which would affect data center end-users, such as e-commerce sites.

“Just in general we heard from a lot of folks that the companies put off all their projects until they kind of had a sense of where the economy was headed in 2013,” Morgan said. There will probably not be a major boost in the first quarter of next year, but there will in the following three months.

A lot of this demand will be created by customers in the financial-services and healthcare verticals, she said.

“Financial services are still a classic vertical, and that will continue.” There will potentially be new regulations of the electronic-trading sector that will require them to keep more data, which, if happens, will also drive demand for additional data center space.

Hospitals are realizing that they need to maximize bed space to increase profitability, which means they will be moving servers out of their own buildings and installing them at commercial colocation facilities. There is also greater comfort with the outsourced-data-center model among hospitals overall.

“When the hospital down the street has done it, then maybe your hospital is more comfortable” taking out some colocation space, Morgan said.

Even though data center construction will pick up in 2013, there is no danger of oversupply on the market, the analysts concluded. The situation is different from what it was in 2003, when there was a massive amount of live data center space on the market built out speculatively, without any pre-lease agreements.

Total demand in 2003 was much lower than available supply – a situation opposite of today’s. Capital for speculative builds was easier to find in the telecom and high-tech “heyday”, which created a mostly speculative third-party-outsourcing market.

Today, there is a definite move to the cloud and outsourced services, 451 analysts wrote in their report. While they did not have a hard number, they estimated that between 5% and 15% of IT would be outsourced.

Most data centers coming online are with “extremely high pre-lease levels”. In many cases they are 50% pre-leased before they launch.

Overall, the report projected that growth in data center demand would continue to outpace supply of data center space in 2013 and over the several years that follow.

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