How Are Data Center Developers Evaluating Market Oversupply?

Is it time to panic? Or is a market oversupply of data center capacity just a myth that keeps returning from one year to the next? Depending on their perspective, data center developers could blithely continue to roll out ever bigger facilities. Alternatively, they could start focusing on recycling what is available and looking for new markets and alternative approaches.

Oversupply? What Oversupply?

Call it denial or statistics; this faction says that the skies are blue and that supply is amply matched by demand. It maintains that stats on data center occupancy have been inflated by including projects that are not yet online or terrains bought by DC development companies as investments for the future.

When costs to present a finished product run as high as $1,000 per square foot, this logic has merit.

Capacity is only real when it is ready. But is it the whole story?

Big Customers Becoming Big Competitors

Certain large corporations started as customers for solutions from third parties. Then they started to use data center developers to build their own DCs.

Facebook is an example. Not only is it now moving out of a number of data centers before its leasing contracts expire, but it is also subleasing the empty space, effectively increasing capacity on the market.

When supply goes up, prices tend to come down.

In this case, a DC developer's response might be to focus on energy efficiency to lower running costs and justify a higher price to customers who are still in the market for leasing.

Wholesale Has the Problem, Colocation is Cool (Maybe)

Perhaps there is a market oversupply problem but for specific sectors rather than everybody.

Wholesale is often singled out as the sector with the glut.

Colocation, on the other hand, is often held up as an example of an expanding market without cause to worry about overcapacity for the near future. If so, wholesalers have various strategies for attacking the problem:

• Target lucrative sectors. The financial services, managed services, and colocation sectors have strong demand, so wholesale suppliers can focus on wooing companies with these activities.
• Accelerate leasing decision times. One point of view is the demand for data center capacity has not changed but that customer decision cycles have lengthened. But is there any other way to get customers to move faster besides offering discounts?
• Change DC construction methods. Phased construction methods rather than ‘big bang’ building methods can help to keep supply better aligned with demand. This is more of a solution for the future, assuming DC developers can weather any current storms.
• Move into the colocation market. If you can’t beat them, join them – and then beat them! In this model, data center developers no longer try to sell the whole shebang but carve it up into smaller chunks to tempt different customers.

Modular Data Centers Could Change the Game

The market for modular DCs is growing too.

A modular DC comes in an ISO standard container or can be purpose-built to given dimensions. They are ready in months instead of years, can be used almost anywhere, and cost less.

To cap it all, you can stack them just like other shipping containers too.

All of this begs the question - If you can snap your fingers and order another slice of data center capacity like this, then why bother with static, monolithic data centers and their inflexible capacity anyway?

Is market oversupply a reality for you? If so, please leave a note in the Comments section below explaining how it impacts your business.