Investment dollars, in the form of debt and equity, are flowing into the data center industry, making it easier for existing and new providers to fund expansions. This wave of capital, particularly at the real estate level, is creating increased competition in key markets, according to experts in data center finance. A few years ago, there was a lot of skepticism about the sector among investors; however, with firms like Equnix and Telx achieving continued growth in top line revenue and pricing throughout the downturn to present day, people have seen that the data center business has staying power.
For service providers, funding is coming primarily via private equity firms, IPOs, or industry consolidations. Private equity firms come with executives with track records in the data center sector. Despite private equity interest, you donâ€™t see many new service provider entrants. Rather, most of the new entrants originate from the commercial real estate word, with limited data center operational experience. These firms tend to pursue wholesale or shell development where “Trust” plays a lesser role.
In 2012, Brian Thomas, VP, Global Corporate Planning at Equinix was quoted as saying, â€œThereâ€™s a lot of money flowing into the data center space, but sometimes itâ€™s disguised. All this money flowing to Salesforce or IBM or Equinix may look like a different solution. In reality, itâ€™s a data center investment.â€ The same is true of much of the money flowing into Facebook, Zynga, Groupon and LinkedIn, all of which are investing in infrastructure, with LinkedIn most recently concluding an upwards of 7 MW deal with Digital Realty in Ashburn, Virginia.
The one area for future development is debt financing. In just a few weeks in 2012, data center providers raised more than $620 million in debt to finance for expanding their facilities, and that’s continuing into 2013. With this positive data center finance market, competition is increasign, and it’s becoming a buyers market. Data center construction has changed somewhat, with data center design now focused on modular data center development and construction…but there’s more room for improvement.