PERE – Data Centers: Hyperscalers are transforming the landscape

Around the world, the data center market is now dominated by a handful of technology companies capable of creating, processing and storing millions of terabytes of data every day. These hyperscalers are global leaders in fields such as social media, e-commerce and cloud computing, and provide the backbone of the world’s digital infrastructure through their platforms.

The continued growth in areas such as the Internet of Things, 5G, AI and machine learning are all factors that are increasing data generation and consumption, and solidifying the already dominant market position of these firms. Between 60 percent and 80 percent of all new data center capacity globally is being built or consumed by them.

Data centers are the physical infrastructure which – effectively – houses the internet. They require uninterruptible power, redundant cooling systems and networks, as well as sophisticated physical security. Any virtual information, system, or communication is ultimately processed or stored in one of these physical locations.

However, the growing presence of the hyperscalers in these data centers is not just transforming the way they are used. It also has important implications for where and how investors should allocate their capital to generate the returns they require.

Investors need to ensure the facilities they invest in meet the demanding standards – including around sustainability – that hyperscalers require, are flexible enough to meet future needs, and are built in the right location. For example, the hyperscalers are rapidly expanding into Tier 2 markets. New construction is therefore likely to focus in areas where hyperscalers will be increasing their presence in years to come, but where risk/reward ratios are attractive.

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