From new streaming binge-watches to staying connected to family and coworkers over video calls to the latest viral social media dance trend, consumers and organizations are using – and demanding – even more power capability and internet connectivity. According to JLL’s new Global Data Center Outlook, social media and hyperscale market expansion are leading to the data center sector’s exponential growth anticipated over the next few years.
The JLL report details how society is racing toward a more digital future, increasingly more reliant on data center infrastructure. It identifies five major trends to watch in the second half of 2022, which include new data center supply challenges driving expansion in emerging markets, the effects of slowing supply chains, enterprise demand for cloud, how sustainability will continue to be a key focus as corporate ESG initiatives grow more urgent and the expectation that capital will continue to flow to the sector.
“Enterprise organizations have continued to invest in cloud services, driving momentum within the development pipeline,” said Andy Cvengros, JLL Managing Director. “Macroeconomic challenges like power and land availability in primary markets could slow data center construction this year, leading to even tighter supply side conditions than in 2021. This may force developers to look outside of traditional markets; however, the sustained demand to optimize the IT footprint through colocation and cloud utilization will support data center market fundamentals and continued investment, especially for long-term investors.”
Along with enterprise utilization of cloud computing, the report also details how social media demands and online gaming are driving record-breaking demand. In terms of absorption and development, the first half 2022 has already broken the record-breaking demand in all of 2021. U.S. market absorption reached 1,087 MW in the first half of 2022, more than 95% of 2021’s full-year total demand. This unprecedented demand creates challenges such as capacity shortages, land availability issues and power delivery delays, for occupiers in an already supply-constrained environment.
The U.S. data center construction pipeline at the mid-point of 2022 totaled 1,913 MW, which exceeds last year’s record amount of 680.8 MW in the first half of 2021 by three times. Additionally, a robust pipeline of multi-phase data center construction is happening across the world. Hyperscale refers to those assets that are industrial in scale with large real estate footprints and software-focused resiliency. Globally, 314 new hyperscale sites are in development, and, at the end of 2024, the number of hyperscale sites will pass the 1,000-mark, up from around 500 sites just five years ago. JLL also anticipates even more data center developments to begin across all regions.
“While data center construction activity has dramatically increased to catch the current and future market requirements in the post-pandemic digital world, the challenge now is how to support future development in key areas moving forward,” Cvengros added.
Delays in construction projects due to supply chain disruptions continue to affect current and future data center development. JLL expects data center projects' timelines to be drawn out as far out as 2024. It's because of these delays we are starting to see significant pre-leasing activity across the globe.
The increased power needed to accommodate streaming services adds to the stress on the sector and accounts for 87% of consumer internet traffic today. Additionally, 4G and 5G networks together now carry 83% of mobile traffic, highlighting the growing need to move data transmission toward mobile-driven networks via edge data centers, which require high data processing and localized capacity to support the large computing power.
“As more organizations deploy IoT services, data centers for edge computing will become more essential to balance larger and more expansive data storage needs,” said Amber Schiada, Head of Americas Data Center Research at JLL. “As more enterprises undergo digital transformation and new applications are integrated into our daily lives, more data center capacity will be required to support the growing interconnection ecosystems in the existing and new potential network hubs.”
The report also details how organizations spent $53 billion on cloud infrastructure services globally in the first quarter of 2022, reaching an all-time high and accounting for approximately 24% year-over-year growth compared to the first quarter of 2021. Hyperscaler users accounted for 60% of this revenue share. Global annual spending on cloud services reached $178 billion in 2021, eclipsing $129.5 billion in 2020.The cloud services sector is expected to grow to $200 billion annually by the end of 2022.
“Companies continue to maintain on-premises solutions; however, hybrid colocation and multi-cloud systems are becoming the preferred solution moving forward,” said Brian Kortendick, JLL Executive Director, Work Dynamics. “To stay competitive and flexible, companies will have to utilize cloud strategies within their IT stack. This will drive cloud provider expansion in new and existing markets.”
Additionally, the data center sector has been working toward more sustainable operations. As a high energy-consuming industry, data centers collectively account for approximately 2% of the total U.S. electricity use, and, at the end of 2021, global data center energy consumption reached 190.8 terawatt hours – 2.2 times more than the total of 2020. Users of all types are starting to require providers to have a clear strategy around their energy usage and sustainability goals, and operators are moving away from designs requiring heavy water.
As the data center sector faces more pressure from the commercial world to have a more transparent and standardized approach toward sustainability, the sector must work together to develop standardized sustainability targets to help the industry measure success.
Yet, the occupier challenges the sector faces and interest-rate hikes aren’t deterring investors. Due to significant hyperscale investment globally, an unprecedented amount of capital is being invested in data center space. Through the first half of 2022, M&A activity was steady, and deals exceeded $24 billion, which is 50% of the M&A total deal volume closed in 2021 and 60% of that in 2019. The U.S. represented 50% of all transactions, but other global markets are gaining share as they expand and provide more opportunities for investors to transact.
“The combination of increased hyperscale demand and longer lead times to deliver power in scale has resulted in an extraordinary amount of pre-leasing commitments across the country,” said Carl Beardsley, Senior Director, JLL Capital Markets. “The long-term investment opportunity remains attractive as the world’s data needs continue to grow exponentially, limited only by power and land availability to scale further.”
For more news, videos and research resources on JLL, please visit our newsroom.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $19.4 billion, operations in over 80 countries and a global workforce of more than 102,000 as of June 30, 2022. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.