Data Centre Dynamics Article – July, 2023

Shifts in demand and looming regulation have created a new frontier.

The US Colocation data center market is poised for a year of prolific growth. Demand is on the rise — with everything from the advent of widely accessible generative artificial intelligence (AI) to the ever-rising tide of digital transformation creating more data, more ways to use that data to create value, and therefore more organizations with money to spend on rack space.

A recent analyst report found a “wave of technological trends” is driving change throughout the data center sector at an unprecedented pace, with “rapidly diversifying business applications generating terabytes of data.” All that data has to go somewhere, and as hyperscale cloud providers push some of their workloads away from large, CapEx-intensive centralized hubs into Tier II and Tier III colocation markets — it’s looking like colos may be in greater demand than ever before.

However, these circumstances pose a serious challenge for the colocation sector, as “the resulting workloads have exploded onto legacy data center infrastructures”, many of which may be “ill-equipped to handle them.”

Now, the colocation market finds itself caught between two conflicting macroeconomic forces. On one hand, the growth in demand puts greater pressure on operators in Tier II and III markets to build more facilities, faster, to accommodate larger and more complex workloads; on the other, the existential need to reduce carbon emissions and slash energy consumption is vital.

For these colos, sustainable practice is no longer negotiable, as governmental regulators in the US introduce tougher restrictions on emissions and stricter reporting requirements.

Both of these trends could pose a serious threat to the future success of data center owners and operators — especially those with legacy facilities. Together, the risks are severe, highlighting why it’s imperative that the industry begins to retro-fit and modernize legacy data center white space for higher levels of efficiency. This, in many respects, will reduce energy consumption, carbon emissions, and operating costs.

The hyperscale workload shift
The sheer quantity of data being created, stored, and used to create value is doubling and redoubling in the US every few years, and with it, the demand for digital infrastructure is growing. A Mordor Intelligence report found the demand for cloud-based solutions in the US has surged “due to the growing application of the technology and consumer propensity toward the cloud” as the technology allows users to access the data from remote locations — a necessity in a post-pandemic world of hybrid/remote work.

McKinsey analysts predict that, by 2030, the demand for data center capacity in the US will reach 35 gigawatts (GW), while another report released by Cisco found the number of networked devices online in the US this year will reach 4.6 billion, rising from 2.7 billion in 2018. Expected to register a CAGR of 11.04 percent between 2021 and 2026, the US colocation market is growing in parallel to the rapid advancements in fields like IoT, AI, machine learning, and others, driving historic growth in data traffic throughout the US.

At the same time, hyperscale providers are changing their approach to meeting this rising demand, shifting their focus away from the large, centralized campuses that dominated the market over the past decade, and instead pushing their workloads onto colos.

Funneled into the colocation space, this rising demand has almost completely saturated Tier I data center markets like Ashburn, Dallas, and Silicon Valley. As a result, hyperscale workloads are driving growth in Tier II and Tier III markets, occupying existing capacity and spurring new developments.

Required to build more white space, faster than ever before to meet demanding public cloud workloads, operators in these fast-developing markets can’t afford not to adjust their approach, both to designing and building new sites, and updating legacy infrastructures to meet the requirements of modern computing.

Sustainability is non-negotiable
At the same time as hyperscale-driven demand spills into new markets, the need to reduce energy consumption, water usage, and carbon emissions is more urgent than ever before. Both at the state and federal level, regulating bodies in the US are beginning to take very real steps to curtail data center industry emissions — with potentially serious consequences for those who fail to comply.

Reporting mandates – requiring data center operators to disclose their carbon emissions, as well as other data related to their environmental impact — are being championed by the White House Office of Science and Technology Policy, as well as Virginia and Oregon’s state legislatures. Although the latter is more focused on cutting emissions from crypto mining, the stringent carbon reduction requirements and hefty fines for non-compliance set an interesting precedent.

The Uptime Institute’s five predictions for 2023 identified both “increasing regulation governing sustainability and carbon reduction” and high energy costs as being among the serious obstacles facing the data center industry. It added that “Delivering bulletproof and energy-efficient infrastructure at a competitive cost is already a difficult balancing act, even without having to engage with local government, regulators and the public at large on energy use, environmental impact and carbon footprint.”

The messaging is becoming increasingly clear from a regulatory perspective: sustainability and environmental impact mitigation are no longer polite suggestions.

Efficiency represents the next frontier for colos
If it wasn’t clear already, 2023 is shaping up to be the year that the colocation sector makes a renewed commitment to reducing energy consumption, carbon emissions, and costs when it comes to designing and installing white space.

The design of a data center’s white space — from hot aisle containment to power — can have an immense impact on the energy efficiency of a data center and requires the skillsets of mission-critical installation and engineering businesses who have intricate knowledge of the data center white space.

Even a relatively small difference in energy efficiency (a drop of just 0.3 PUE, for example) can mean millions of dollars in electricity savings, and dramatically reduce an organization’s carbon footprint, especially important to hyperscale cloud providers and their customers, who are increasingly required to track Scope 3 emissions.

Not only will a laser focus on white space efficiency help colocation data center operators in Tier II and Tier III markets mitigate some of the biggest potential pain points in the years to come, but doing so will also give them a noticeable edge over their competition as they align their values and practice with a new breed of “super consumer”: the hyperscale cloud provider.