Data centers demonstrate resilience, increased importance to global economy during pandemic

SAN FRANCISCO, September 17, 2020 – COVID-19’s impact on public safety and stay-home orders drove significant demand for immediate digital connectivity around the world. JLL’s 2020 Mid-Year Data Center Outlook finds data centers’ resiliency and reliability established the sector as one of the few to perform strongly during the first half of the year.

According to the report, data center REITs produced higher returns in the first half of 2020 than office, industrial, retail, hospitality and healthcare. Additionally, three out of five data center REITs (CyrusOne, QTS, Digital Realty, Equinix and CoreSite) yielded at least 40% returns over the past year.

However, despite an immediate need for capacity, especially for cloud services, users and operators paused and delayed deals, generating backlogs JLL experts expect will fuel growth toward year-end and into early 2021. Year-to-date absorption stands at 295.2 MW, with more than half of the leading domestic markets showing an increase year-over-year.

“Demand in Northern California increased by 7.5MW year over year when comparing H1, 2019 and H1, 2020,” said Raul Saavedra, Managing Director for JLL in San Francisco. “Our teams are now preparing for a new surge in activity to meet the ongoing demand for digital connectivity, both at work and at home. We believe that vacancy rates will fall by nearly 100 basis points to approximately 5% by the end of the 2020.”

The pandemic and the overall surge in data center demand globally created short-term challenges for operators and REITs alike. Migration to the cloud and greater adoption across multiple industries, thanks in large part to greater convenience, is driving unprecedented activity. The stifled pace of development and absorption is expected to accelerate once again, as those in the field identify and create new adoption strategies and solutions, putting the sector in line for a strong performance to close out the year.

Rent compression and increased competition within the United States has also pushed operators to expand into international markets, resulting in robust M&A activity globally to start the year. Experts anticipate operators will continue to expand services and increase capacity in favorable global regions including Western Europe, South America and Asia.

For more insights on data center industry performance, download JLL’s latest Data Center report