Globally, the data center industry saw major expansion in 2018 as well as record Mergers and Acquisitions (M&A), despite the early indicators of an economic turndown and uncertain regulatory issues. Regardless of these indicators, available capital for growth and M&A in 2018 shows no signs of letting up in 2019. We have seen the primary data center markets of Ashburn, Silicon Valley, Dallas, Chicago, and Phoenix in the US, and Frankfurt, London, Amsterdam and Dublin in the EU see the hyperscalers continue to grow with multi-megawatt builds.
Over the past two to three years, the industry has seen an unprecedented amount of capital chasing data center and communications infrastructure assets. New entrants into the sector range from small local developers to major financial institutions. Over the 2015-2018 period, the largest investors were Digital Realty and Equinix (2015-2018 spent $23B combined) with the purchases of DuPont Fabros and Verizon among others. Other notable data center operators who have been acquirers include CyrusOne, Iron Mountain, Digital Bridge/DataBank, NTT, Stack Infrastructure and Carter Validus.
There is a clear trend that enterprise operators are moving away from controlling their own data centers and moving toward a more hybrid approach for their IT solutions. The opportunities for purchasing and converting assets are great, but there are some potential hurdles. Sellers and sellers’ brokers tend to overvalue the aging in-place infrastructure. For instance, while they may have been maintained impeccably, the configuration may be dated. Very few are building new data centers with a 2N configuration; instead opting for the N+1 concurrently maintainable design. The new equipment tends to be more efficient and more reliable to comply with customer service level agreements. Regardless of the valuation, we will see investors overpaying for assets globally in order to accommodate the end user timing of deployment. Speed to market is usually the winner in almost any marketplace, second to pricing.