Hyperscale Data Center Development

[00:00:00] Speaker 1: Welcome to the Data Center Hawk Podcast, where we help you make good decisions in the data center space. Today, we're talking about part five of our Hyperscale Data Center series. [00:00:07] Speaker 2: But when you take the data with what's happening in the market and the conceptual knowledge that a lot of people in our industry have, that's the power of being able to then go and make really good decisions in this market, putting capital to work and seeing a return on your investment. And that's why we built that Hyperscale tool. [00:00:25] Speaker 3: You're listening to the Data Center Hawk Podcast, where we demystify the data center market. Data Center Hawk is your online platform for data and commentary on the data center market. Stay tuned and be sure to join the thousands of others who rely on Data Center Hawk to make [00:00:41] Speaker 1: decisions in the data center space. Well, as we look to help people in the industry make good decisions, there may be no better place to make good decisions around the Hyperscale customers in the space. That is true. So we've spent the last probably what, six to 12 months building out this Hyperscale tool. We've talked about it on the prior podcast. And today, we'd love to just talk about some of the things that we've, I'll call it unearthed on this journey we've been on. And understand, again, put a fine point on why it is so important to have a good handle on these companies and what they're doing. [00:01:11] Speaker 2: Yeah. And one thing I'd add before we start is this is part of the, our industry that really changed over the last five years. And we have watched, you know, demand size grow. And in the process of that, you know, data center operators really changed their strategy to meet that demand and figure out how to do it. And so, you know, as we've, as we've built this tool and we've really tried to understand now that we can see that we have the data, we can see the data and what the data tells us, you know, it's, it's really fascinating to see, and you can start to put, you know, the framework around this part of the space that's been growing so much over the last few years. [00:01:47] Speaker 1: Yeah. You know, there's probably a handful of different points in the last five years where you could have said like, this is an inflection point. There's significant demand, there's demand spikes, but we're recording this in February of 2022, just coming off probably the most active quarter the industry has ever had. Obviously a lot of that driven by Hyperscale. So, so I think we're saying, you know, now, and I think we probably think into the future, there will be more of those types of periods where, you know, for whatever, for various reasons, there's a, a splurge or surge of, of Hyperscale activity in the space. And that's really what we've tried to [00:02:18] Speaker 2: quantify here. Yeah. And you're, what you're trying to do is understand how these companies are thinking and viewing their IT infrastructure, where they want it to be geographically, how big they want it to be, what the design of these data centers, you know, should look like. And so some of the takeaways that we have had, at least I've had, as we've been able to quantify this data, you know, one is if you look at the, like, let's pick Northern Virginia, if you look at that market and you think about the companies that own their own facilities or like lease in a powered shell format, that market alone is larger than the multi-tenant data center market that we track. You know, it's almost 1800 megawatts. So that fact alone is, is, you know, really amazing. If you just think about the capital that has gone into both sides, you know, of that market. And, and there's one user in particular that you could argue is, you know, 80 to 90% of that in specifically in Northern Virginia. So I think that's an interesting component. Then there's, you know, other data center, uh, users, Hyperscale companies that traditionally have, you know, always like built their own capacity and have chosen to pursue that path where they buy the land themselves. They, they, they build it. And, you know, you can see them like basically building in certain markets only, but then leasing in other markets only. And so that's another thing that our tool shows really well. [00:03:44] Speaker 1: Yeah. I think that's stuff that most people in the industry probably knew or had a fairly good idea of anecdotally. But, but when you're talking about these massive capital commitments, you don't make those on anecdote, you don't make those decisions on anecdote. You got to have the data. You got to have [00:03:58] Speaker 2: the information. Absolutely. And, and, you know, the, so, so we sit in Dallas and, but this market is a really good example. And actually the, the last, you know, six months of activity here shows just how much this Hyperscale growth part of the market can change things. So historically, you know, Dallas's vacancy rate has been like the multi-tenant vacancy rate has been above 15%. And we've had a couple of Hyperscale users that have built in the market, like owned and operated their own facilities. And we saw the leasing volume get turned up significantly in the, you know, the end of the year by several, a couple of Hyperscale users, which traditionally has not happened here. And so that's a big change for Dallas. You know, I've always said that if there's a market that, that hasn't been, that that fuse has not been lit yet, it's here. And, but once it does, there's no telling how large this market can be because in certain areas we do have probably more land than some data center markets that are, you know, real estate, um, more constrained from a, from a land side of [00:05:03] Speaker 1: things. So the fundamentals of Dallas have been strong for a long time now. And to your point, yes, there's a lot of companies who have attempted to capitalize on those fundamentals are now seeing the, the come that, that come to realization. Yeah. And it's been a while. I mean, they've, [00:05:16] Speaker 2: you know, there's been some long months and probably years in Dallas with some capacity sitting, which we traditionally haven't seen, but I would tell you like literally in 90 days, [00:05:25] Speaker 1: a lot of that is gone. Yeah. So one of the things that we've, we've built into this is, is really trying to enable the decision-making process to be a little bit of accelerated. And again, that primarily revolves around the geography. So I think talk about maybe how you've seen some of the multi-tenant guys evaluate the hyperscale landscape and make some decisions based [00:05:44] Speaker 2: on what that data has yielded. Yeah. A lot of it is, you know, when you back up from the actual physical building and all the power and the fiber that's going to those facilities, this is a real estate game. So you're trying to figure out, Hey, where can I put, where can I go buy land and, and bring the necessary infrastructure components to be able to win some of these opportunities? And so, you know, there's a, certainly a country discussion where to put it. There's a state discussion in the U S there's a market discussion. And then within each market, and this is probably one of the biggest changes I've seen is the sub market discussion that's going on. What's driving that is, you know, challenges with delivering power in certain geographic areas. Land costs has been another part of that process, but you know, in areas like, um, you know, Dallas, we've seen data center operators actually like buy land right next to a hyperscale company. And you've seen that in Northern Virginia. We've seen that in Phoenix, like in the, um, some market of Goodyear. So that's happening. And you're also seeing that as well in Europe. Um, and so, so that strategy, um, has taken place in, in most places it's really paid off. You know, some think that, Hey, if, if the hyperscale user that's building next to us, you know, isn't able to meet timelines or something like that, perhaps we can be a fallback option. And then the other is there's, you know, different users that actually want to be around those other hyperscale users. So if you're ahead of the game, you get there, you bring the power, uh, the fiber to the site, you know, you're in a really interesting position with a powered site next to, you know, some of the world's largest companies that are building and owning and operating their own data centers. And I think that's the phenomenon we saw specifically [00:07:26] Speaker 1: happen just in the last Q4 of 2021, where companies who had set themselves up to capitalize on some of that call it spillover demand. We're able to, to, to capitalize on it as they intended to. Yeah. So paid off really helpful to see. Um, and that's another thing with our tool. You can see [00:07:43] Speaker 2: specifically like, here's where the, that, you know, user was building and here's where that land site is. And so it's, you know, it's, it's not just us talking about it. You can actually, you know, physically see that stuff on our hyperscale tool. Okay. So as we look forward, [00:07:55] Speaker 1: so again, the, the, the, the crystal ball that all these companies are trying to discern is where will these companies go next? And so a lot of times I think with the hyperscalers, they purchase land and they're able to move very quickly on it. And so there's a bit of a timeline understanding that has to occur. Uh, obviously the geography is very important, but how are we seen, uh, or how are we setting people up to understand that future landscape? [00:08:17] Speaker 2: Yeah. So, you know, one of the things that you can see pretty clearly on our platform is the differences between like building and leasing and, and how these markets have grown over time. We, we, we do see like a dual strategy, certainly in the U S where in Canada, where these companies, that the users themselves have chosen to own and operate facilities themselves and lease infrastructure in large quantities. Over in Europe and Asia, it's a little, it's more skewed towards leasing because it's a lot harder to, um, you know, build own and operate your own facilities from a timeline perspective, regulatory stuff. We've talked a lot about that. Um, but if you think about just from like a U S standpoint, you know, there are some like smaller cities markets across the U S that have a very small leasing, uh, market, a very small multi-tenant market, but have a gigantic hyperscale market. Omaha, Nebraska is one of them. Um, there's been a lot of investment made by several hyperscale users and that market is really large, um, Columbus, Ohio, you know, and, and really in the city, there's a few places kind of in the Dublin and Hilliard area. And then if you move to the east into the new Albany, uh, sub market, that's where we've seen a lot of growth from hyperscale, like owned and operated activity. But, but in Columbus, there's just a smaller, you know, multi-tenant market. And then Albuquerque is another example of that. So you've got some pretty large investment infrastructure dollars being spent by a hyperscale user and just a smaller multi-tenant market. So that's been really interesting to watch. In fact, those are the markets that I think, you know, certainly Columbus, maybe the other two that, that you're seeing more activity from a data center operator perspective, thinking like, Hey, can we get into that market and be one of the first three or four there? So that when some of maybe the bigger deals happen from a leasing standpoint, we're in a position to capture them. [00:10:20] Speaker 1: You know, you mentioned the leasing piece and I think that there's, we've seen that increase, specifically around companies that can't meet their own timelines around with their self-built facilities. So where have you seen some of that leasing grow or expand or have the dynamics of that? [00:10:36] Speaker 2: Yeah. Um, you know, Northern Virginia, the leasing market has been on fire over the last, you know, year to two years. Uh, you know, so we, when we track the market, you know, everybody, I would say that's doing what we're doing is following the space like we are and investing money in it. Um, you know, you've got like a bigger group of, of hyper skill users and then kind of a smaller subset. They still have very large requirements, but just not as large as, you know, the big three or four. Uh, and so some of those smaller companies are, you know, they're basically like leasing in areas like Northern Virginia, uh, Chicago, and then might build the rest of their infrastructure, you know, or, you know, there's a company that we track that, you know, it's got about 135 megawatts lease in Northern Virginia, approximately 22 in Chicago, 45 in Phoenix, uh, but has traditionally just leased and has not built, you know, they have a couple of legacy data centers, but they've been around for a long time. So those are some of the interesting dynamics of this, that if you're trying to understand where these companies are going to grow, you really need to segment these groups into, you know, those that are only leasing those that are doing both and then, you know, trying to figure out how do we get ahead of where they want to be down the road. And that's really the game that we're, I'm saying it's game. That's really the, the world that we're in today. Um, and this is about where companies feel confident about spending their money in advance of where they think the demand will be. And that's why the data side of things is so important. That's why I started, we started data center Hawk was to be a place where a trusted source of info where you could come and hopefully speed that decision-making process up because you have good data to inform a lot of things you already might know some that you don't, but when you take the data with what's happening in the market and the conceptual knowledge that a lot of people in our industry have, that's the power of being able to then go and like make really good decisions in this market, putting capital work and seeing a return on your investment. And that's why we built that hyperscale tool. So that wraps up our hyperscale series that we've done. You know, we really try to create content that we believe the, our customers, and then also people in the space would find valuable. So we, this is our fifth edition of our hyperscale fundamentals fundamentals. Yep. And we also have a data center fundamentals track as well that I think is eight episodes. So if you like Mike and I, and you want to spend more time seeing us, uh, that's an eight episode, uh, track that you can actually find on, uh, YouTube. And there's also on our website blogs that we've written on the, on the, uh, topics as well. All right. Thanks, David. So check out both of those series, [00:13:15] Speaker 1: data center fundamentals, hyperscale fundamentals. If you'd like more information specifically on the hyperscale tool, uh, there's a link below. You can schedule some time with the team. We'd love to meet you understand what you're trying to get after in the hyperscale data center market. I will hopefully [00:13:26] Speaker 2: talk to you soon.