2018 in Review
2018 was a pivotal year for the data center sector as the market experienced record growth in leasing activity. Enterprise, institutional and webscale customers alike took down massive amounts of capacity in order to address future growth requirements. The data center merger and acquisition boom continued in 2018 with approximately $5.1 billion of closed transactions as leading industry players looked to address customer requirements on a global basis, adding capacity and expanding geographic coverage while enhancing their core product offerings.
The segments of the market that are attracting the strongest interest from investors are the hyperscale and network-centric colocation providers that are widely viewed as having the most upside and strongest growth potential from the Cloud with limited risk of competition. In spite of initial fears about the cannibalization of the data center market by the Cloud, investors have come to appreciate the reality that “the Cloud has four walls” and that companies providing colocation and interconnection ecosystems are ideally suited to participate in the hyperbolic growth arising from Cloud adoption.
Hyperscale Driving Record Growth
The aggressive pursuit of hyperscale data center colocation opportunities was clearly the most prominent trend in 2018, with established players and new entrants alike looking to participate in the extraordinary growth driven by companies like Amazon, Facebook, Google, Microsoft and Netflix. For example, Amazon Web Services grew approximately 40% in 2018 to exit the year with annualized revenue in excess of $28 billion, so it is clear why data center providers are moving to position themselves to capitalize on the colocation requirements of this burgeoning customer segment.
Established operators such as CoreSite, CyrusOne, Digital Reality, QTS and Vantage saw increased competition in 2018 with the formation of a number of new platforms targeting the hyperscale market. Among the most notable is former CoreSite CEO Tom Ray’s $2 billion EdgeCore initiative alongside financial partners Mount Elbert Capital, GIC and OPTrust. A number of others have been established, including Hossein Fateh’s CloudHQ and IPI’s STACK Infrastructure, while established multi-tenant data center operators like Cologix and EdgeConneX also moved decisively into the hyperscale segment in 2018.
Moving to the Edge
In addition to the enthusiasm for data center operators focused on hyperscale and interconnection opportunities, one of the most interesting new developments in 2018 was the formation and funding of a number of new companies focused on edge colocation. The objective of edge colocation providers is to enable carriers, cloud providers, CDNs, web scale companies and other enterprises to place IT equipment that can provide compute, storage, and networking one hop from wireless networks in order to address
latency issues for mission-critical applications and optimize end-user experiences.
The most prominent news in edge colocation last year was the investment by Berkshire Partners and Crown Castle in Vapor IO, which is deploying a network of micro data centers at the base of cell towers and in nearby wireless aggregation hubs. The partnership between SBA Communications and Packet on an edge data center deployment at an SBA wireless tower site in Foxborough, MA will be an interesting test case. Edge Micro has begun live testing on edge computing pilot projects with 10 technology companies at its Denver area facility.