Colocation Data Center Developments, Predictions, and Alternatives for H2 2024

As energy calls for surge amid the unrelenting AI growth, analysts assess the expansion of the colocation knowledge heart market, define the dangers the trade faces, and look forward at improvements which will assist colocation services meet organizations’ unprecedented vitality wants.

Getting Off the Cloud

After a interval of mitigated funding in knowledge heart services and workers, many organizations are shifting workloads away from the cloud, in accordance with Alvin Nguyen, senior analyst at Forrester. On the identical time, the vitality demand for distributors is hovering. “Many organizations are discovering it simpler to work with a colocation associate, particularly when taking a look at generative AI and the potential value to help it on-premises.”

Nguyen mentioned the colocation knowledge heart market has been rising with a compound annual progress price starting from slightly below 10% to over 14% (relying on the supply), and he doesn’t count on that to vary any time quickly. “Even when the generative AI bubble bursts, there’s nonetheless loads of demand,” he mentioned, including that the potential for market costs to drop will depend upon how a lot additional capability is constructed.

‘A Competitors for Area, Energy, and Water’

Escalating energy wants can’t be met just by modernizing or retrofitting older services, Nguyen mentioned, echoing the panel dialogue throughout a webinar hosted by Data Center Information earlier this yr. The necessity for brand new knowledge heart development tasks presents each difficulties and alternatives, in accordance with Mike Rechtin, a associate in DLA Piper’s Actual Property group. “Constructing new knowledge facilities in areas the place folks reside has turn out to be a problem,” Rechtin mentioned, citing a “‘not in my yard’ perspective, particularly in prosperous neighborhoods.”

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Nguyen summed up the true property challenges dealing with distributors: “Constructing extra capability the place there’s sufficient vitality, water, and area that can also be shut to finish customers” and cited elevated competitors in residential, industrial, and industrial markets.

Rechtin mentioned the restrictions of expanded development in densely populated areas imply that knowledge facilities are more and more being developed in rural areas with entry to energy distribution. This, he says, shall be a boon to the development trade. “We see a variety of room for industrial builders to develop their companies. Due to large demand, builders who might have been beforehand contracted to construct a warehouse or related industrial improvement at the moment are being contracted to construct knowledge facilities, even when that kind of venture is just not of their core portfolio.”

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GenAI Is Not the Solely Colocation Progress Driver

Whereas it’s no shock that AI has intensified the necessity for energy and storage capability, New York-based analyst for IBISWorld Alexander Govdysh highlighted different elements in greater vitality necessities and knowledge heart colocation demand. These embody a better push after the coronavirus pandemic towards e-commerce and a digitization of companies.

“Parallel sectors akin to finance will proceed to embrace newer know-how for issues like Bitcoin mining,” Govdysh mentioned. “It will improve colocation heart leasing prices and enhance income.” He additionally cited the stabilization of inflation and constructive financial sentiment amongst companies as accelerants in colocation heart improvement.

Nonetheless, Govdysh predicts AI will proceed to be the most important instigator within the rising want for colocation services. “Many companies and customers are embracing AI of their each day lives,” he mentioned. “The depth of those duties, which vary from picture creation to pc code scripts, takes up rather more vitality with every subsequent AI replace, creating better want for extra bandwidth throughout the colocation facilities.”

The Dangers and Alternatives of AI

The velocity at which the AI sector is evolving presents its personal set of dangers, Nguyen mentioned, elevating the hypothetical prospect that future generative AI approaches could possibly be much less power-hungry. “However this additionally represents a possibility for colocation distributors,” he mentioned, as a result of “investing in knowledge facilities that may fulfill present generative AI wants is pricey. A colocation vendor can soak up that threat and shall be associate to discover generative AI ambitions over the subsequent few years till a agency reply on generative AI’s future might be decided.”

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AI can also be getting used to assist handle knowledge heart utilization and workloads, Nguyen mentioned, sharing anecdotally that one colocation associate Forrester interviewed noticed their shoppers herald their very own sensors to include detailed environmental knowledge into workload balancing. “Extra remedial duties akin to knowledge administration proceed to be adopted by AI,” Govdysh added, “boosting operator effectivity and securitization of knowledge.”

This can be a World Trade

Based on Jon Hjembo, senior supervisor of infrastructure analysis at TeleGeography, a telecommunications analysis agency, energy limitations between interconnection markets is without doubt one of the trade’s greatest challenges. He pointed to restrictions in Singapore, Ashburn, Frankfurt, and Amsterdam because the culprits in creating congestion in high-demand campuses and pushing up costs.

Right here, too, threat presents a possibility for the colocation knowledge heart trade. “Hub market constraint is an impetus to push networks and knowledge facilities into new locations,” Hjembo advised Data Center Information. “However to seize alternative in nascent markets, operators have to maneuver quick. They should watch key progress indicators carefully after which bounce in earlier than these locations get saturated with new infrastructure funding.”