Uptime: Colocation Firms are Building Fewer Data Centers

If you look at recent earnings reports by the biggest data center providers, you’ll get the impression that the industry is booming.

And it is. Enterprises are moving more workloads either to the cloud or to commercial colocation facilities, and data center providers are benefiting from both. As more companies use cloud services, cloud providers are racing to lease as much data center capacity as they can get their hands on, resulting in a boom for the big data center providers who can’t build new facilities fast enough to satisfy all the demand.

Read more: How Long Will the Cloud Data Center Land Grab Last?

The sound of champagne corks popping after earnings reports by the biggest players in the market, however, can mask the fact that in general, the amount of new data centers being built for lease by one or multiple tenants in the US has been declining.

This doesn’t necessarily mean the amount of new data center capacity being brought to market is shrinking. This is the age of the mega data center: service providers may be building fewer facilities, but the size of each individual building is getting bigger and bigger.

Market studies by IDC in 2014 and 2015 found that the trend in the data center provider industry was toward building fewer but larger buildings.

In a more recent study, 24 percent of colocation providers Uptime Institute surveyed this past February said their company had built a new data center within the previous 12 months. That’s down from 29 percent in 2015 and 45 percent in 2014.

Interestingly, construction slowdown in the data center provider industry has been more drastic than the slowdown in enterprise data center construction. Fifteen percent of enterprise IT respondents said their company had built a new data center within the previous 12 months both this February and the year before. Eighteen percent said so in 2014.

Source: Uptime Institute Data Center Industry Survey 2016

Far from Perfect

While overall colocation customer satisfaction levels are high – only 7 percent of respondents to Uptime’s survey said they were dissatisfied or very dissatisfied with their primary data center provider – colocation isn’t the perfect answer for everybody. According to Uptime, 40 percent of enterprise IT respondents were paying more for colo contracts than they expected to pay when they signed those contracts.

See also: Slow Waning of the Enterprise Data Center, in Numbers

Nearly one-third said they had experienced a data center outage at a colocation site, and the bulk of enterprise respondents said downtime compensation in their agreements with colo providers was insufficient. About 60 percent said the cost of data center outages overshadowed whatever downtime penalties were included in their Service Level Agreements.

Lots of Business Still on the Table

While many of the biggest data center providers are chasing the multi-megawatt wholesale deals with cloud giants, there is a huge portion of the enterprise market that remains untapped, and companies like Equinix, QTS Realty, and CyrusOne, as well as the cloud giants themselves, are pursuing that opportunity.

Source: Uptime Institute Data Center Industry Survey 2016

Enterprise-owned data centers still host 71 percent of enterprise IT assets, according to Uptime. Data center providers have 20 percent of those assets, while the remaining 9 percent is in the cloud.

The big question today is how much of that 71 percent will go to the cloud, and how much of it will end up in colocation data centers.

Further reading: Why Keep the Enterprise Data Center?