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2Q 2021 North American Data Center Market Recap
This article talks about the state of the data center services market in the U.S. in Q2 of 2021. Based on datacenterHawk's podcast, topics include recent industry drivers, demand comparisons to the 2020 market, and the future of the region.

By Mike Netzer · 7/21/2021

We also just released our 2Q 2021 Data Center Market Recap, which is our in-depth article about 2Q and includes more specific data and trends we saw in North American markets, as well as Europe and APAC.

In this podcast, we discuss what shaped the quarter, with topics that ranged from sales trends to client mindsets heading into the back end of the year.

This article will examine the state of the industry in North America as well as attempt to make some informed predictions as to market growth in some of the hottest metropolitan areas in the nation.

Demand Overview

Overall digital growth mirrors raw Internet usage to some degree, of course. We've seen a leap in the number of internet users worldwide between January 2020 and January 2021, this includes a rise in mobile phone & tablet internet access. Remote was clearly becoming the new normal, and businesses needed to react quickly.

Nobody was really certain how much of an outlier the 2020 market represented. Certainly, the drive towards remotely interconnected offices, secure work-from-home setups, and cloud migration by sheer necessity wasn’t going to be repeated in 2021, at least not to the same degree. Data center services are still critical, but most of the companies that needed to react to the pandemic have already found their happy medium… at least in the short term.

Even with things calming down somewhat over the last few months, it can still be said that demand has been relatively strong throughout the year. Not as strong as the historical highs of 2020 of course, but still great. Better still, the data center industry has been able to meet the new demand, and aggressively provision for the future.

How? Improving the supply side in the last three to four years has been critical. The pandemic hammered home the importance of supply chain efficiency for effective time to market, scalability, and flexibility. Because the sizes of campuses and buildings continue to grow, this new level of preparedness and agility is critical. This is particularly true for enterprise clients. In 2020, a lot of the requirements for ongoing projects were paused. But now, they're all starting to unfreeze. In major metropolitan areas, this means a surge in demand, particularly in the 500 kW to 4 MW range.

It isn’t all great news, however. Some clients are asking for shorter leases in order to bridge their needs as they sort out long-term cloud strategies. And international demand coming into the U.S. has been slower than anything seen over the last year. However, many of the companies that showed some measure of domestic market interest in the past are just now starting to make inquiries again.

The Yin and Yang of Data Centers

2Q 2021 is displaying a duality in the data center services industry. On one hand, there's a slow downtick in vacancy and an increase in pre-leasing, which reflects the maturity of the industry; informed clients who have been around the block before already know what they want.

On the other hand, the number of companies asking for short-term leases and still trying to figure out their cloud strategy reflects some of the immaturity of the industry. Cloud strategy seems to still be evolving, with multiple conflicting trends in the marketplace.

For cloud migrations, IT leaders probably had the opportunity to make this sort of move multiple times in the last few years. But the cloud is an ever-changing, complex environment where there's a hesitancy to sign long-term deals, even if it saves clients money. Making a great decision today might bite the company in the rear three years down the line, particularly if there's an acquisition or a dramatic change of focus within their industry. Recent events probably aren't increasing anyone's faith in their long-term forecasting.

Regional Trends in Data Center Services and Markets

Northern Virginia is a market driven by hyperscale requirements. It saw moderate growth in 2Q, and it's also spreading out to cover a wider geographical area. The sector there is so unique, datacenterHawk is developing a new analysis tool that tracks and reports specifically on hyperscaling trends. It will undoubtedly be useful in other regions as well as some of them grow towards that end of the market.

In a way, Phoenix is positioned to be the next Northern Virginia. The amount of interest from large companies and the volume of new development are both indicators of some big movement in the near future. There's a misconception that there's a lot of supply available in the Phoenix market. That might have been somewhat true up until about three months ago. But now, those sites are seeing a lot of activity, and it's just a matter of time before more capacity is needed.

Speaking of capacity, Portland has doubled in the last two years. A number of providers with major hyperscale and enterprise credibility have established themselves in the area, so hyperscale users that already have ties with these companies can offer an easy onboarding process. Being on the west coast but outside of the metropolitan areas that have development challenges is a plus. The undersea cables are well-positioned to feed expanding demands in Asia. And the mix of hyperscale and enterprise clients means that even though local companies tend to be much smaller than the likes of Dallas or Chicago, there's still a lot of opportunity for high bandwidth data center services at great prices. Which drives more companies to the area, thus snowballing the trend. Great tax incentives and business-friendly attitudes from the local government certainly help as well.

Salt Lake City is an exciting market, continuing to ramp in 2Q. There’s lots of pre-leasing from interested users while maintaining their local client base. The providers there are building big, which historically has been rewarded in the region. Proximity to Silicon Valley certainly helps. The development cycle is lagging behind what was seen in Portland by a little more than three years, so the potential for a boom is there.

Looking Into the Future

The data center services forecast for the next six months is bullish.

Bigger projects that were on hold in 2020 seem to be on track for completion by the end of the year, all across the U.S. The resurgence of enterprise companies is really going to help smaller markets that don't often see big deals. Finally, the tone of data center development and particularly what's happening on the renewable energy side is encouraging. Expect to hear more about green data center development and some companies moving towards those facilities exclusively as they strive to meet their carbon footprint goals.

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