The Future of Hyperscale Data Centers - Data Center Fundamentals

[00:00:00] Speaker 1: All right. Welcome to the Data Center Hawk podcast. Today, we're continuing our series on hyperscale data center users. And today we're looking forward to the future of the hyperscale [00:00:09] David: data center industry. So if the question is, do I think that the top four hyperscale users will grow by 26% or more in their own footprint over the next several years, I'd say the answer is yes. [00:00:23] 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 [00:00:39] Speaker 1: decisions in the data center space. All right. If you missed any of the previous episodes, you can check them out on our YouTube or any other podcast channel. Catch up on those and there's some great content there, but leads up to where we're at, how we got here. And today we're going to look forward. I have on my notes here, topic one. Is that where you'd like to start? [00:00:59] David: That's typically the spot to begin. [00:01:01] Speaker 1: Yes. All right. Okay. So we've talked about on past podcasts, just the growth, the rapid, large amounts of growth that's taking place in the country. So, you know, we say, if you look at like the top four users we've talked about before, over the last five years, they've expanded their own footprint by an average of 26% per year. Do you think this will continue? This amount of growth? [00:01:21] David: Yeah, I do. The, if you look at the statistics that we've tracked and others as well, I mean, the, their growth really ties to the continual adoption of public cloud, as well as the increase of the use of their services during the pandemic. So those two things together, uh, have created, you know, basically the, um, the upswing of growth that's taken place over the last couple of years. And I even think as the pandemic, Lord willing dies down, um, you know, the amount of adoption of their services during that period of time will continue. So, uh, I believe that will take place and, you know, not, and, and also too by others, which I know we'll talk about here in a minute, but, but certainly [00:02:11] Speaker 1: think that that growth will continue. Okay. Uh, one of the things we also talked about is like the owned versus least dynamic and seen over the last several years, these companies are leasing more as a percentage of their total, you know, growth in a given year. Do we think that you think that's going to continue going forward or will that swing back? [00:02:28] David: Yeah. It could swing back. It's hard to, hard to say, but I think what, I think if you trying to like gain clarity, the things that you can pull out of that are number one, uh, the demand is too large to, to take one path only. And so those companies, I think feel the, the need for that flexibility to be able to say, Hey, I, we're building 150 megawatts over a 10 year period in this market. But during this time, we're going to have some other requirements that appear that we just can't put into that original footprint. So, uh, so it creates dynamics around leasing and, and a, so that's one point. The second point I'd make is those that are doing the leasing from the data center operator perspective have gotten a lot better. So their facilities, their design, their PUE, a lot of the other things that, uh, are, uh, presented and utilized by the end user fit their footprint a lot better than it did five, 10 years ago. So, um, it wouldn't surprise me if it swings back the other way, but I don't, I don't think we'll ever, ever see a time where, uh, those groups specifically commit to one type of, of growth pattern. [00:03:42] Speaker 1: Got it. And then when you look at those kind of the growth trends versus own versus least trends, when you think kind of like next 12 months or then like 12 months beyond, do you see any like major differences or shifts, you know, across those two time periods? [00:03:56] David: Uh, yeah, I think we'll see an increase in leasing over the next 12 months. Uh, I mean, at least with some of the requirements that are out in the market today with these companies needing to expand in locations that are really challenging to grow in because of a number of reasons. And, and that pushes them to go like, Hey, if there's a site that is six months down the road from a development perspective, then our own site internally, we're going to, we're going to lease capacity there. And so I think, you know, timing plays a big role in a lot of this. And so I think because of those things, you'll see some short-term leasing growth. [00:04:34] Speaker 1: All right, David, moving on to topic number two, a numero dos, as it were, how will hyperscale location strategy change over time? So let me give you a couple of stats. I know you love stats. In fact, you've built an entire company around statistics. Yeah, let's go data. Datum, just one data point. Okay. So we say, if you look at the owned and leased capacity for top four companies, top four users are on the board. Top four answers are on the board. We surveyed a hundred people. No, I'm just kidding. All right. Northern Virginia, 3,700 megawatts. Des Moines, 591, Omaha, 400, Columbus, 392, Phoenix, Atlanta, Dallas, kind of at 310 to 360 range, Prineville, Kennewick, 275 to 285. So those are kind of like they call your top 10-ish. Do you see that the dynamic of those markets shifting at all? And let me ask a follow [00:05:25] David: on why. The shift will take place in the fact that demand will be pushed more towards like major co-location markets. And I think the reason why is that there's challenges related to delivering capacity and maybe some of these other markets, you know, related to like how that capacity impacts the end user. So just like proximity to end user base. So like a lot of what you see in that list that you just talked about was development, data center development that took place 10 years ago, 15 years ago, and like growth over time in a market. So if you have 500 acres or 100 acres of land to build on, it's easier to add a building or facility easier. It's, you know, less challenging to, to build an additional building on some of those sites than it is to go acquire a new site in a market. Because a lot of times acquiring a new site in a market, you have to deal with economic incentives and, you know, just new site selection, market selection issues that you didn't have to before. So I think that you will see, and this is a trend that's already happening, but you'll see a continuing trend in the future of additional growth in markets that are, you know, more traditional data center markets from a multi-tenant perspective as well. And I, and that, that's going to continue. [00:06:57] Speaker 1: Yeah. So that's, you make an interesting point. So you look at the list list, Des Moines, Omaha, Columbus, Prineville, Kennewick. So five of kind of the top 10, I would say, I would say are not traditional co-location markets. So we've touched on this a little bit in the kind of history, but, you know, just give a quick recap of why those markets came to be hubs. And then, like you said, is the growth in those markets kind of slowing? Are they still kind of like a, almost like a back office for these larger companies where they do different types of you know, data center processing, if you will, uh, in those locations versus like a Northern [00:07:29] David: Virginia or Dallas or Phoenix? Well, I would say there's such a large footprint in these markets. I don't think they'll, they'll ever be considered like a back office would be to other, uh, you know, locations because I mean, as an example, there's one data center, hyper scale company that has 24 individual facilities in Des Moines, Iowa, and these are massive facilities. So, uh, if you walk by some of what is happening in Omaha right now, uh, or drive, drive by there, there are, uh, the facilities are just huge and the footprint is huge. So, uh, they're, they're very significant. I don't think you'll see these locations like suffer over time or development will stop over time. Um, I just think that the, the reason, the reason the development has happened there has, was, you know, reasonable power costs, tax incentives, um, infrastructure that was there, plenty of water, fiber, all the, all that you would need. Uh, and I think the communities understood what data center development was. I mean, this is maybe a historical anecdote here, but I remember going on, you know, um, looking at different markets and meeting with economic development officials. When I worked at, um, a real estate company, helping companies figure out how to grow in these markets. And some markets really understood it. Some people in those areas really got, Hey, we're not talking about 10 megawatts here. This company needs, you know, over a hundred, you know, over a five to 10 year period. How are we going to get it there? And then you would feel the ones that didn't know. These are examples of those that did. And so you're seeing why these companies would want to expand with them. Um, so, so I don't think you'll see these, these areas get hurt by the growth in other places. Just think it's, it's happening. You know, the demand is more than just what is needed in some of these secondary or tertiary [00:09:16] Speaker 1: markets. And then, you know, as a kind of an overlay of that, like you talk about the edge concept or some of these hyperscalers pushing out to the edge or to smaller markets. So, so what do we, when we say ed, we talk about edge with hyperscale groups, what does that mean? And how do you see [00:09:32] David: that impacting some of these location strategies? Yeah. I think that we've done a number of podcasts on the edge. In fact, with companies that are developing products specifically to meet the demand. You may even say we've been living on the edge. You could say that Mike, if you really wanted to get, you could say that. Um, so, I mean, it's really where the, the demand, the, the demand is. And I think that from an edge standpoint, um, what, like how these companies are looking at that is like how, how their applications impact those users. And I think there's certain things that these companies want to put in certain locations and there's other applications and new technologies that they're building that they need to be closer to the end user. And, and so that is impacting where a lot of this will, will go. So I don't, I, I think you'll continue to see the bigger demand, you know, hit these, these areas that we've seen and that the smaller, you know, edge, uh, requirements will be in areas either that are on this list too, or, you know, spread out to, to meet, you know, where the users are. [00:10:44] Speaker 1: What is, when you say smaller demand for one of these companies, what does that look like? [00:10:48] David: Two to six megawatts. Yeah. Got it. Okay. Very different than some of the products that are being developed, you know, some of the products that we've seen, like edge products are like in the 100 KW range, 200 KW modules or, you know, uh, containers that can be placed in certain, certain areas. So, so when we say, you know, edge requirements for these type of companies are just much bigger. [00:11:10] Speaker 1: Uh, next topic is, is the concept of like renewable energy around these companies. You know, every one of these, you know, large hyperscale companies has some commitment to become carbon neutral or 100% renewable or net zero carbon. And you can really go down the rabbit hole on what those definitions mean. Um, but typically they're looking at like 2030 to achieve this. Um, you know, how do you see that impacting growth location, you know, how they tend to either build versus lease. What does that, how does that, what's the impact going to be on the future? Yeah. Uh, [00:11:42] David: you know, 10 years ago, I didn't have the history in the space that I have today. So now I can go back when I started, you're very grizzled when, when the data center industry was really starting to grow significantly, there were a few companies that were really focused on this. Um, and they communicated that. I think others were trying to catch up, but these goals are the goals that you just read off are very hard to achieve. I mean, these are not easy. Um, well, if you were to, [00:12:15] Speaker 1: even if you could attain it today, tomorrow is a different equation. That's right. There's adding capacity and they've got to have a, like a process to continue to grow their renewable [00:12:25] David: footprint along with their data. Yeah. And the data center world is becoming more and more, um, maybe publicly facing as our world depends on the infrastructure to be successful. You know, and, and it probably became the most visible it's been during the pandemic. So I, so anyway, the renewable conversation is going to increase in importance moving forward. It will be, I think, harder to achieve in certain locations because of some of the energy challenges. If you look at what's taking place in certain regions of the world, like at any time, you know, can impact the renewable discussion. Uh, but I think the good news for the industry that there's an industry stat out there today that, you know, says that the data center industry uses in between, you know, between two to 5% of the world's electricity. Uh, so when you kind of step back from that and you go, this is a big, big deal. Uh, water usage is another big part of the data center space, but I would say both the hyperscale users as well as the data center operators that serve a lot of their needs are a hundred percent focused on, you know, uh, achieving the, the renewable goals that they have. And that's going to allow for, you know, further growth growth. If you want to partner with one of these companies, you almost have to adopt the goals that they have to, um, so, so that they know that the partners that they choose are on the same path with them. And, you know, this is becoming more and more public. And I think because of that, it will just be more and more important moving forward. And then, like I said, I mean, this is a, these are massive amounts of infrastructure and, you know, there's some that maybe think that that is a negative, but there are also those that are using the, what the infrastructure is providing. So it's a weird position to be in. Let me tweet my anti data center. Exactly. Exactly. Yes. So, um, so anyway, that that's the, that's the challenge, but as you like, I think the, certainly the energy market as well as those that are the consumers in the data center provider and user space are really focused on this. Yeah. [00:14:42] Speaker 1: It's certainly something to keep an eye on going forward. I think it, it, it's, it's something that they're all looking at and so it'll continue to, to have an impact. Yeah. And the way they make decisions [00:14:51] David: about, you know, future growth. Yeah. And it's one of the reasons that, you know, power companies and, and power providers are looking at their fuel mix and really trying to figure out, hey, how do we, uh, change over time to reach the goals that we need to, to, you know, not necessarily achieve a hundred percent renewable on a fuel mix side of, uh, side of things, but increase where they can, you know, and there's obviously there's those in this market that understand these renewable conversations more than we do, but, you know, when you're changing fuel mix sources and the capital that goes into producing that power, um, it's, it, these are long-term decisions that cost a lot of money. So, uh, so it's, it's one of those things that you kind of need a long-term view to make progress. And I think that what you're seeing on like the list that you read is the decisions that have been made over the last three, five, 10 years, uh, to get to something like that. It just takes a while. [00:15:46] Speaker 1: Yeah. All right. Well, David, good thoughts on the industry as a whole, but specifically hyperscale forward-looking thoughts. So we will certainly be keeping on this going forward. Um, plenty of, of big developments that we can, we can keep an eye on. So if you have missed any, again, of the past episodes, feel free to catch up on our podcast. Um, as always data center, hawk.com for more information. We'll catch you next time.