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The main takeaways from 4Q 2020

2020 ended up being a year filled with events that no one expected. These unexpected challenges led to record demand in the data center industry.

The fourth quarter wrapped up one of the largest growth years for the industry. Five of the top ten markets in North America (Dallas, Phoenix, Northern California, Northern Virginia, Northern New Jersey) had their largest growth year since datacenterHawk began tracking them.

Two other top ten markets (Atlanta, Chicago) had their second best year ever and it came close to their best.

Growth in Frankfurt and other European markets

The Frankfurt data center market has taken a front seat it comes to the growth in the European markets for a few reasons. While London is still the largest market, Frankfurt has outpaced London’s growth in recent quarters.

Frankfurt’s growth is due to its maturity as a market, its high degree of connectivity and the ability for developers to secure land and power. Market maturity means there are enough companies who have an established footprint in a geography that new entrants are more willing to grow their based on the experience of others who have gone before them.

As connectivity becomes a larger factor in making colocation decisions, the fact that Frankfurt is highly connected adds to the appeal.

Finally, developers in Frankfurt -and Germany as a whole- have been able to procure land and power more quickly than in other European markets. This “speed-to-market” ability is an advantage when it comes to landing large data center requirements.

It’s not that the other major European markets aren’t growing, it’s that data center providers have put a lot of their focus in Frankfurt and have shown others how they can grow there.

Amidst growth, rates have gone down

Over the past 5-10 years, the data center industry has experienced increased demand all over the world, and yet we’ve seen a compression of rates. This is counterintuitive in the real estate world, but when you look at it over time, it makes sense.

We’re still in a young stage of the data center industry. 10 years ago, rates were higher because there may have only been one or two data center providers in a market, which meant there was little to no competition. Increased presence in major markets by multiple operators has resulted in lower rates.

Another reason for the lower rates is that the product has continued to become more efficient, which has driven costs (and the associated rental rates) down. As innovations continue and providers incorporate customer feedback so they are not developing unwanted facility features, rates will continue to compress.

Don’t forget to check out the rest of our HawkPodcasts and don’t miss out on our latest release of market data for the data center industry.