The CF List: 2022's Top Data Center Colocation Providers You Should Know
Private equity is investing heavily in data center colocation.
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Omdia’s Alan Howard and S&P Global’s Dan Thompson cited Digital Reality as a top data center colocation provider. Howard said it’s the largest service provider by square footage and the second largest by revenue.
This month, Digital Realty launched ServiceFabric, an interconnectivity solution and orchestration platform to support the shift to a hybrid, data-centric architecture.
Howard and Thompson said Equinix is a top contender. Howard said it’s the largest provider by revenue and the second largest by square footage. In April, Equinix announced its 77th consecutive quarter of revenue growth, with over $1.7 billion in the first three months of 2022.
Howard and Thompson cited NTT Global Data Centers as a market leader. Its reach extends to more than 20 countries across Europe, North America, Africa and Asia, including a major presence in India.
In the past year, NTT has opened new data center buildings in Amsterdam, Munich and Frankfurt, continuing its position as the No. 1 data center provider in Germany.
Thompson said Sabey Data Centers is among data center colocation leaders. The company recently committed to net-zero carbon emissions by 2029.
“The big push toward sustainability has been the biggest change we’ve seen over the last couple of years,” Thompson said. “With so many companies making net-zero commitments and other ESG commitments, and asking their vendors to do the same, suddenly there is a great need for the colocation industry to get its house in order, so to speak. We’ve seen a good number of data center providers joining in with sustainability programs, including energy purchasing programs. Lots going on here really.”
Howard and Thompson said CyrusOne is a top contender. In March, KKR and Global Infrastructure Partners (GIP) completed their $15 billion acquisition of CyrusOne, taking the company private.
“We see significant opportunity ahead for CyrusOne to build on its market-leading position and impressive track record of delivering state-of-the-art data center solutions around the globe, at a time when the world is increasingly dependent on them, at a rapid pace,” said Waldemar Szlezak, a partner at KKR. “We look forward to leveraging our global experience investing behind digital infrastructure to, together with GIP, support CyrusOne’s continued growth, and are excited to get started.”
Howard said Chindata Group is a leading data center colocation provider. Chindata Group operates two sub-brands, Chindata and Bridge Data Centres. Chindata operates hyper-density IT cluster infrastructure in the greater Beijing Area, the Yangtze River Delta Area and the greater Bay Area, the three key economic areas in China. Bridge Data Centres owns deployable data center clusters in Malaysia and India, and seeks business opportunities in other Asia Pacific emerging markets.
Howard and Thompson said Global Switch is a market leader. Global Switch is currently a hot acquisition target. AustralianSuper and EQT are among companies reportedly seeking to acquire the data center operator.
Global Switch operates 13 facilities across Europe, Australia and Asia. Chinese steel giant Jiangsu Shagang Group took control of the data center company over a three-year period beginning in 2016.
Howard and Thompson said GDS is a top contender. As of fourth-quarter 2021, China-based GDS has 96 self-developed data centers, with about 490,000 square-meters of total IT area in service, covering China’s primary economic hubs. The company’s customer base consists predominantly of hyperscale cloud service providers, large internet companies, financial institutions, telecommunications carriers, IT service providers, and large domestic private sector and multinational corporations.
Howard and Thompson said Cyxtera is a data center colocation market leader. The company, which recently joined the Russell 2000 Index, operates a footprint of 61 data centers in 28 markets around the world. It provides services to more than 2,300 leading enterprises and U.S. federal government agencies. Last July, Cyxtera completed its merger with Starboard Value Acquisition Corp. (SVAC) and became a public company.
Howard and Thompson cited QTS Realty Trust as a top contender. Last summer, Blackstone Infrastructure Partners completed its acquisition of QTS for $10 billion. taking the company private. It offers data center solutions across a footprint spanning more than 9 million square feet of owned mega scale data center space within North America and Europe.
Howard said Iron Mountain is a leading provider. The company celebrated its 70th anniversary last year. It serves more than 250,000 customers ranging from SMBs to 95% of the Fortune 1000 in 66 countries around the world.
“At the most rudimentary level, the most effective solutions for colocation or hosting is a combination of many things, but primarily ease of use, ease of customer support and its responsiveness, solutions based on current technologies, and of course reasonable cost,” Howard said.
Howard said Lumen Technologies is among top providers. Lumen has expanded its Edge Computing Solutions into Europe, providing the low latency platform for businesses to extend their high-bandwidth, data-intensive applications out to the cloud edge. This expansion is part of Lumen’s continued investment in next-generation solutions.
Howard and Thompson said CoreSite is a market leader. One of the legacy public colocation providers, CoreSite was acquired by American Tower, one of the largest global real estate investment trusts (REITs). American Tower is an independent owner, operator and developer of multitenant communications real estate with a portfolio of approximately 219,000 communications sites and an interconnected footprint of U.S. data center facilities.
“One of the things many colocation companies do is create an ecosystem of managed service offerings supported by partners in their data centers,” Howard said. “CoreSite, now part of American Tower, offers a solution partner program and provides their customers a marketplace for services.”
Howard cited Telehouse as a top provider. The global availability of more than 40 Telehouse-branded data centers in 10-plus countries worldwide throughout Asia, North America and EMEA, delivers continuous operation of network-dependent, IT infrastructure to businesses around the world.
Howard said Flexential is a market leader. Flexential plans to greatly expand its data center estate, adding 33 megawatts of capacity in regional markets like Georgia and Colorado before the end of the year. That’s more than double its expansion last year. The company is on track to have more than 220 megawatts of capacity and 3 million square feet of space in operation by the end of the year.
Keppel, a Singapore-based data center REIT, is a top contender, Howard said. It primarily grows through acquisitions.
“The pandemic had a significant impact on colocation service providers due to the accelerated need to support remote working,” Howard said. “First, interconnection and network services demand went up significantly to support remote working, as well as connectivity to cloud and SaaS providers. The increase in SaaS usage, particularly for collaboration services, also benefited colocation SPs as many of those SaaS services use colocation for the infrastructure needed to deliver their services.”
Howard and Thompson said DataBank is a noteworthy data center colocation provider. DataBank is a portfolio company of DataBridge, which also bought Zayo and carved out Zayo’s colocation business, zColo, and sold it to DataBank. That substantially improved DataBank’s market reach.
Evoque Data Center Solutions is a market leader, Howard said. The company was formed by Brookfield in late 2018 after it acquired a portfolio of data centers from AT&T for $1.1 billion. It’s expanding into the market for hyperscale computing, offering built-to-suit data centers backed by green energy, which could include on-site renewable power.
NextDC is a noteworthy provider, Howard said. It’s primarily a local data center company in Australia. During the first half of its fiscal 2022, the company saw an uptick in its revenue coinciding with the company signing 144 new customers. As a result of this growth, NextDC had a total of 1,569 customers by the end of 2021.
Howard cited Switch as a top contender. Switch is being acquired by DigitalBridge Group and IFM Investors in a deal valued at $11 billion. The acquisition, which will take Switch private, should close in the second half of this year. For the first quarter of 2022, Switch reported $164.6 million in total revenue, increasing 26% compared to the first quarter of 2021.
Howard cited Switch as a top contender. Switch is being acquired by DigitalBridge Group and IFM Investors in a deal valued at $11 billion. The acquisition, which will take Switch private, should close in the second half of this year. For the first quarter of 2022, Switch reported $164.6 million in total revenue, increasing 26% compared to the first quarter of 2021.
The data center colocation industry is witnessing increasing competition from existing and emerging industry players.
Sustained demand for colocation has driven data center service providers to expand hyperscale facilities in strategic locations. In addition, several carrier-neutral service providers have entered new markets as they recognize widespread geographic presence as a critical success factor for growth.
Further, private equity (PE) firms are increasingly recognizing data centers as an attractive asset class. And they’re willing to invest in large-scale facilities, further increasing the competition in several markets.
This is our first annual “CF List” focused on top colocation data center providers. Analysts share their views on what it takes to succeed with the technology. It includes a new list and fresh views on changes in the competitive landscape.
Typically, a colocation facility provides the building, cooling, power, bandwidth and physical security, while the customer provides servers and storage.
Data Center Colocation a Mature Business
Alan Howard is principal analyst of cloud and colocation service in Omdia’s cloud and data center research practice.
Omdia’s Alan Howard
“Colocation is a mature business so there isn’t commonly something earth-shattering that pops up every 12 months.,” he said. “That said, automation and ease of service provisioning is an area that has been evolving. Typically it’s about automating customer interactions and ordering. Self-provisioning of interconnection is a good example. Monitoring customer infrastructure is another. Another area that has and will continue to evolve is data center operation efficiency to lower costs for both operators and their customers, which of course relates directly to sustainability activities. Customer requirements for sustainability, transparency/accountability and in particular the use of renewable energy offsets are growing at a fast pace. Many colocation customers, particularly hyperscalers, have sustainability requirements that must be met for a deal to be made.”
M&A has been quite heavy for a number of years now, Howard said. However, the most dramatic shift has been in private equity infrastructure funds acquiring public colocation companies and taking them private. There are a lot of implications behind that and how data center expansions might impact supply and demand dynamics in various markets.
Pandemic Positively Impacted Colocation Data Center Industry
Dan Thompson is principal research analyst at S&P Global Market Intelligence.
S&P Global Market Intelligence’s Dan Thompson
“On the whole, we have seen that the pandemic actually had a positive impact on the data center and managed hosting/services industry,” he said. “When all the workers got sent home, companies had to scramble to figure out how to support them and how to keep business moving forward. Colocation and other managed services were a way forward. At the same time, services offered by the hyperscalers (Amazon, Microsoft, Google, etc.) were also being heavily leveraged, which forced those companies to grow their infrastructure. This, too, had a positive impact on the wholesale end of the data center industry in that companies that had space in the large markets saw a lot of initial demand.”
Now that people are slowly heading back to the offices, companies aren’t abandoning any of those platforms, Thompson said.
“We’ve not seen any slowdowns or pullbacks,” he said. “Companies seem to be charging ahead now with some lessons learned from the last two years.”
Several Trends Impacting Data Centers
Nishchal Khorana is vice president and global program leader at Frost & Sullivan.
Frost & Sullivan’s Nishchal Khorana
“Data centers form the backbone of today’s digital economy,” he said. “And the services industry continues to evolve rapidly with several trends impacting data center locations, design, technologies adopted and value proposition.”
Some of these trends include:
The enhanced focus of colocation service providers on scale as they build digital infrastructure to address the hyperscale demand from segments including public cloud service providers, OTT, and content and gaming companies.
Designing data centers with high-density colocation capabilities to optimize real estate and address the requirements of workloads such as big data and artificial intelligence (AI).
Sustainability becoming a core element of the data center strategy and value proposition impacting the data center design as well as operations.
Service providers are leveraging AI to gain energy efficiencies, enhance security and thereby create competitive differentiation.
Accelerated focus on edge data centers, as use cases demanding better customer experience and lower latency is on the rise.
Digital Transformation Sparked Demand for Colocation
The pandemic accelerated enterprises’ digital transformation initiatives, Khorana said. They leveraged technology to support new business models to deliver better customer experiences and enable a geographically distributed workforce.
“This led to more significant data processing and storage requirements, driving a greater need for best-in-class data center colocation services,” he said. “Besides the enterprise demand, leading data center service providers also witnessed an increasing demand from public cloud providers, a key market segment for colocation services. However, the pandemic also put forth significant challenges on the service providers with respect to a slowdown in new infrastructure builds and supply chain challenges faced with respect to capacity expansion.”
We’ve compiled a list (in the slideshow above), in no particular order, of 20 top data center colocation providers. It’s based on feedback from analysts and recent news reports. The providers are making the most of the ongoing competitive landscape and charting success.
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