One of my favorite parts about leading datacenterHawk is having a front row seat to the changing data center market. I talk to colleagues in our industry frequently about the evolution taking place with data center users and providers, and the last few years have been fascinating. We’re on track for another active year in 2017, and below are five trends we believe will be present among North American data center operators.

Fish acquisition Equinix Telecity Interxtion
– Thinkstock / KaeArt

The largest markets grow fastest

The largest data center markets grew the most in 2016, as areas like Chicago, Dallas, Silicon Valley, Northern Virginia, and Phoenix combined for nearly 300MW of commissioned power growth (inclusive of pre-leasing). Smaller data center regions experienced little growth. The gap will likely continue to widen between these two types of data center market, as larger cities have more capacity under construction and planned for the future.

Cloud growth will continue

Large cloud providers need capacity in major markets and their ability to grow quickly has increased in importance. As a result, cloud operators leased record capacity from data center providers in 2016. Lease transactions of this size have never been seen in the industry, some as large as 35 MW. Example of some of these transactions are listed below. Look for this trend to continue.

  • 3Q 2016: CyrusOne – 13.5 MW in Phoenix
  • 3Q 2016: RagingWire – 4.8 MW in Northern Virginia
  • 3Q 2016: EdgeConneX – 18.0 MW in Chicago
  • 3Q 2016: CyrusOne – 15.0 MW in Northern Virginia
  • 3Q 2016: Vantage – 6.0 MW in Northern California
  • 2Q 2016: CyrusOne – 18.0 MW in San Antonio
  • 1Q 2016: DuPont Fabros – 16.0 MW in Northern California
  • 1Q 2016: DuPont Fabros – 7.11 MW in Chicago
  • 1Q 2016: CloudHQ – 35.0 MW in Northern Virginia
  • 1Q 2016: Digital Realty – 5.4 MW in Chicago
  • 4Q 2015: Digital Realty – 7.2 MW in Chicago
  • 4Q 2015: CyrusOne – 22.5 MW in Northern Virginia
  • 4Q 2015: CyrusOne – 9.0 MW in San Antonio
  • 4Q 2015: DuPont Fabros – 10.4 MW in Northern Virginia
  • 4Q 2015: DuPont Fabros – 6.0 MW in Chicago

M&A market activity will continue

Acquisitions significantly impacted the data center industry in 2016 and will continue in 2017. As competition increases and data center operators look to expand, acquiring other companies is the focus of several large operators. Vantage Data Centers is an M&A target for several companies in 2017, and it is likely Digital Bridge will be the buyer. 2016 examples of M&A activity include:

Data center operators will grow with campuses

Data center operators will continue to grow by acquiring large sites to build multiple facilities. The alternative of acquiring a smaller site holding only one facility can make expansion trickier. One of the catalysts to this growth method is large demand from cloud providers in major markets, and their need to grow quickly. By controlling the land for a campus build, data center operators are positioning themselves to handle these requirements.

Secondary market growth still on radar

Despite the activity occurring in major data center hubs, some operators will look to grow in secondary markets over the next year. Cities like Atlanta, Cleveland, Minneapolis, Nashville, Raleigh, Salt Lake City, and others will get significant looks from providers looking to take advantage of under-served cities. Opportunities exist with users who traditionally have owned and operated their own facilities or have placed their requirements in other cities because there is no credible data center operator in their current market. Examples of recent regional acquisitions include:

David Liggitt is president at information service datacenterHawk