Last week we launched an article series exploring how data center facility management is evolving REIT and data center provider operational models. This week, we’ll look at the legacy versus digital data center landscape and the shift to hyperscale.
We learned a lot over the past couple of years. Some of the lessons learned focused on how to stay relevant and ahead in a world that requires persistent connectivity. In a digital economy, we quickly saw how our data centers, hyperscale ecosystems, and colocation providers all played a critical role in helping people stay productive and connected.
With that in mind, leaders in the data center and enterprise space are beginning to look at the data center and connected infrastructure in a fundamentally new way. In a recent article from Nature, we learned that in a 2016 report, the Lawrence Berkeley National Laboratory estimated that if 80% of servers in small US data centers were moved over to hyperscale facilities, this would result in a 25% drop in energy use. If you look at the data center and hyperscale market today, you’d see that this is very much already underway.
Today, the world has around 600 hyperscale data centers, many of them mopping up services for small corporations or universities that would have previously had their servers. And, there are about 6,600+ colocation and wholesale data center facilities across North America, EMEA, Asia-Pacific, and Latin America.
The Hyperscale Shift
This shift towards hyperscale and more efficient colocation data centers means a maturity shift in how organizations understand the balance between cloud and data center solutions. Being impacted are smaller, traditional, and even enterprise data centers. We’re removing infrastructure that was there to fulfill a computing purpose and not much else. They’re often not efficient and prone to issues like outages and downtime. It’s exciting leaders in the business world see this colocation and ‘hyperscale shift’ where they see the direct benefits of moving from less efficient infrastructure to highly resilient and efficient hyperscale and colocation solutions.
For post-pandemic planning, this is a trend to embrace. Data center leaders need to be reaching out to enterprise leaders and helping them build their business, while you, the hyperscale and colocation expert, help them design their digital infrastructure.
But with this shift, some additional challenges are being posed to hyperscale and colocation leaders. With the departure from enterprise and smaller data center locations, how are hyperscale and colocation leaders focusing on what they do best? That is, running a data center?
So, how do you continue with the trend of data center growth while still reducing management overhead? Where can REITs and data center leaders make changes to ensure they focus on their business and technology solutions rather than worrying about facility management?
Consider this, a recent report from ResearchAndMarkets found that the data center services market is projected to grow at a CAGR of 13.69% over the forecast period (2018-2023). Among those services is managed services. From there, a different ReasrchAndMarkets report shows us that the global managed services market size is set to grow from USD 180.5 billion in 2018 to USD 282.0 billion by 2023, at a Compound Annual Growth Rate (CAGR) of 9.3% during the forecast period.
The major growth drivers of the market include the need for cloud-based managed services and the increasing dependence of organizations on IT assets to enhance their business productivity and the availability of specialized managed service providers who can offer cost-effective managed services and proactively monitor IT resources to eliminate the chances of service downtime. North America is expected to hold the largest market size and dominate the managed services market from 2018
With this vast growth in the digital space, how are data center and REIT leaders shifting their focus to ensure they have the business in mind? One area where REIT and data center provider leaders are looking to shift their workloads is in the facility management space.
Classically speaking, outsourced Data Center Facility management is the services and employees who directly interface with the data center facility, its occupants, service providers, and executive leaders. The facility manager supports and provides data for annual operating and capital budget requests but does not make actual budgetary or tenant leasing decisions, which are generally reserved for more senior asset management, portfolio management, and corporate executive staff.
With this in mind, it’s important to note some fundamental differences. Today’s professional facility manager is not recognizable compared to the old model from the 1980s and 1990s. With technology and training, the facility manager has become accountable for the overall tenant experience— adding value to the facility by incorporating best management practices— working to improve NOI and asset value.
This is where we pause for a second. Another critical change in asset value is the modern definition of the data center. Data centers are now seen as an asset class to the business. As an essential part of the business, this digital infrastructure is becoming an increasingly important asset to organizations. That is, rather than acting as a cost center, these are revenue-generating assets that need to be optimized for performance. And so, the shift to outsourcing facility management to ensure further focus on the value of the data center asset class is a crucial consideration.
Data Center, Hyperscale, and REIT Facility Management: Legacy Vs. Digital
Today, there are far more pieces of digital infrastructure in the mix. We see growth around data center facilities, hyperscale locations, cloud computing, and now the edge. Growth around facility considerations drives a significant shift in thinking for data center and REIT leaders to leverage their most valuable assets more effectively while outsourcing facility management capabilities.
Why is this so important in a digital economy? A data center provider or REIT with externally managed assets has more flexibility to move capital between facility types and geographic locations without considering where its employees are located. Internal facility management by a provider or REIT may have been an effective means to manage locations and various assets in the past. However, in a digital world, leaders see the benefits of outsourcing.
As opposed to past assumptions that internal facility management was the way to go, new studies indicate that outsourcing the data center facility management part of the business can have significant benefits. For example, in the past, REITs and some data center providers incorrectly believe that they save money through internalizing facility management.
The reality, however, is that unless a data center provider or REIT owns a substantial portfolio in any market, it can usually save money by outsourcing facility services in that location. Other factors may still mandate internalization, but saving money that way is nearly impossible.
It’s important to note that it’s not all about saving money, even though that’s quite important. Another critical factor in helping a data center provider, enterprise, or REIT business grow is by focusing on core competencies and improving the end-user experience. Further, it allows REIT and data center leaders to focus on technological innovation and less time on facility management.
Download the entire paper, “Focusing on Data Center Expertise,” courtesy of CBRE, to learn more. In our next article, we’ll look at what a next-generation operational model looks like for a REIT or data center provider aiming to compete in a digital market. Catch up on the previous article here.