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The Growth of Partnerships Between Data Center Providers and Hyperscale Users

By Stephen Schlenker · 6/23/2022

Demand in the data center industry continues to increase as the industry matures.

One of the main drivers is more collaboration between the largest hyperscale users and data center providers.

What is happening?

The largest hyperscale users have taken a dual approach to leasing and owning data centers. One of the reasons these users prefer a leasing structure is that data center providers typically offer a faster construction timeline. Data center providers have planned ahead by acquiring land in many areas and obtaining permits to bring data center capacity to the market to meet demand quickly.

Both data center providers and hyperscale users are shaping their growth strategy based on these growing collaborations. The last two quarters have had increased demand numbers due to preleasing from these hyperscale groups.

Absorption in Major North American Markets

Why Now?

Trust has grown over time
After years of working together, data center providers have shown hyperscale users that they can consistently supply reliable, high-quality data center power and space. Through conducting many large projects, data center companies now have dedicated teams that strategize together with hyperscale users.

Mutually beneficial goals

The collaborative environment at a strategic level is mutually beneficial. The hyperscale companies can have a pathway to growth that fits their timelines, while data center providers can provide the exact needs to high credit users at target returns.

Hyperscale project size increasing

The size of hyperscale users' deployments are much larger than they have been in the past. In the first quarter of 2022, datacenterHawk tracked three transactions of over 60 MW in North America, compared to one transaction of that size in 2017 and 2018 combined.

The patterns of low vacancy in primary markets leave the most well-prepared users with the best opportunities for cost-effective long term growth. Also, as the size of hyperscale users deployments increase from just taking up data halls to taking up entire data center campuses, they are under more pressure to plan further ahead for power companies and data center providers to fill their needs.

Historocal Portland Absorption

Collaboration is expected to continue with hyperscale users setting ambitious goals going forward on number of data centers and growth into new markets across the globe. The data center providers are expected to continue to utilize the experience of past partnerships to help develop in newer markets.

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