Learn more about Stream Data Centers’ perspective on navigating this perfect storm and delivering the capacity hyperscalers need, via build-to-suit solutions we’ve been delivering since 1999.
COVID-19 has been a perfect storm for the digital infrastructure industry. On one hand, data volumes skyrocketed to unprecedented levels as pandemic lockdowns drove massive increases in web conferencing, video streaming, and online gaming. As just a few examples: Zoom saw a 1900% increase in highest daily meeting participants during the first months of the pandemic. Peak traffic on the Amsterdam exchange broke the 8-Tbps barrier for the first time ever on March 30, 2020. Akamai CEO Tom Leighton said at the time, “I’ve been looking at traffic graphs for over 20 years now and I can’t recall seeing anything like this.”
All that traffic translates, of course, to huge increases in demand for data center capacity. In 2020, absorption rose 70% over 2019. In 2021 it was up another 44 percent over the previous year, according to JLL’s 2021 Year-End Data Center Outlook.
On the other hand, COVID-19 supply chain disruptions weakened the industry’s ability to keep up with such fast-growing demand. According to CBRE’s U.S. Real Estate Market Outlook 2022, “pandemic-related restrictions in Asia-Pacific, material shortages, and increased shipping delays to U.S. ports could delay new data center development and impact the refresh cycles of existing data centers.”
What’s old is cool again
The perfect storm will continue to intensify in 2022 and coming years as any excess capacity left gets absorbed. As a result, hyperscalers are relying more heavily on third parties for data center capacity. “Outsourcing is sharply increasing as major hyperscalers are scrambling to find enough data center capacity globally to host their significant incoming workload activity,” explained Credit Suisse analyst Sami Badri. In January of this year, Badri projected the share of new capacity that hyperscalers lease to grow from 50% to about 60%; just five months later, it is at least 75%.
How did we get to a place where build-to-suit is cool again? Rich Miller put it well in a recent article: “The hyperscale operators are good at building data centers. But as their operations grow, their company-built campuses must also navigate a difficult construction environment, with shortages of both supplies and labor. That combination is prompting a greater reliance on developers specializing in data center construction.”
These will be data centers built to suit the specific and unique requirements of each hyperscaler. And they will be very, very big. “Available landsites in key data center markets have been limited due to competing industrial demand, power deployment constraints and supply chain issues for critical infrastructure,” according to the JLL report. “This has resulted in hyperscale users competing for data center space that can accommodate large-scale growth that was previously unheard of (i.e., 36+ MW requirements). There are now more 20+ MW requirements than there are 1 MW requirements.”
At Stream, we’ve seen this trend firsthand and have developed campuses capable of meeting the large-scale demands. At full build, our Phoenix data center campus will support up to 400 MW of critical load across 3+ million square feet of data center space, making it the largest hyperscale development in the area.
Build-to-suit before build-to-suit was cool
Since our head of sales and leasing Chris Bair likes to pepper conversations with arcane cultural references, it’s no surprise that on this topic he pitched the analogy of the 1981 Barbara Mandrell hit ‘I Was Country When Country Wasn’t Cool’ which featured an uncredited but unmistakable duet with George Jones. (It’s true that Bair wears straight-leg jeans and flannel shirts regardless of how cool they are, but the parallel is a fair one: Stream has been developing data centers to suit our customers’ particular requirements since 1999.)
One of our advantages in this perfect storm is that we haven’t had to retool to serve this increased demand from hyperscalers. We’ve been focused on delivering capacity under the ‘off-the-shelf’ model hyperscalers had preferred, but we also have a long history of delivering the build-to-suit capacity that will, for the time being at least, augment a significant percentage of hyperscalers’ self-built capacity.
Three aspects, in particular, have enabled us to deliver build-to-suit before build-to-suit was cool:
- We are a privately held company, with institutional capital partners including some of the largest pension funds and endowments. This translates into a long-term, patient capital structure that is not managed quarter-to-quarter and allows us to take our time with our customers in crafting a solution that meets their typically complex requirements. It also gives us tremendous flexibility in how we can structure transactions in every manner including open book yield on cost, turnkey and shell, as well purchase alternatives for our customers.
- We’re real estate developers and capital solutions are an important part of our offering. Mike Armstrong, our CFO and Managing Director of Investments, put it this way: “Our investment platform is fully integrated with our data center development and operations services. That seamless integration gives us the unparalleled market insight and product knowledge necessary to deliver the outcomes our partners expect.”
- Since 1999, we’ve built and operated world-class facilities for the largest and most sophisticated companies (90% of our data center capacity is leased to Fortune 100 customers). We’ve been optimizing procurement, containing costs and mitigating risks in data center environments for more than two decades. One of the key advantages of experience is knowing what to do when things don’t go according to best laid plans, which few things do in this perfect storm. Even the most well-run projects are likely to be impacted by the uncontrollable disruptions affecting everyone in the industry. But it is in these hard times that our true character is revealed. Our culture of collaboration and communication, proactive and creative problem-solving, and honest transparency enable us to navigate the storm.
At Stream, build-to-suit can mean bespoke from the ground up to suit a customer’s very particular requirements. We also understand the speed to market and scale constraints hyperscalers are facing, and that it’s often necessary to start with a standard form factor that can be configured to the customer’s specifications, in order to move fast and build big. In that way, build-to-suit becomes build-to-spec, which could mean configuring facilities to support a prescribed topology, or power distribution/striping plan. With highly configurable large-scale campuses like Phoenix, our ‘spec’ form factor can more quickly accommodate our hyperscaler clients’ fit out needs in a shorter timeframe than what is achievable in a ground-up build-to-suit offering.
A 25% change in the share of capacity hyperscalers will rely on partners for, and the unprecedented size of that new demand, means the pressure is on for data center providers to deliver. At Stream, we’re ready for it, because delivering bespoke capacity for the nation’s most demanding users is in our DNA.