Coronavirus Brings Challenges, Opportunities to Data Centers

While the sector is adjusting to the new conditions, it appears to be weathering the pandemic relatively well.

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While some industries are being heavily impacted by the coronavirus outbreak—especially the hospitality sector—the data center market seems to be weathering the crisis better, as internet usage continues to surge. With cities and states across the country and around the world on lockdown, people are forced to work remotely and spend more time indoors. As a result, data center operators have taken steps to cope with increased internet traffic. They have also restricted access to their facilities, keeping only essential staff onsite or even halting new projects. 

Construction uncertainty

After recently completing the acquisition of bare metal data center company Packet for $335 million last month, Equinix stated on its notice page that it would “work closely with construction partners to minimize delays in the build schedule,” without providing details regarding the projects that will be impacted. The company did not respond to Commercial Property Executive’s requests for additional information. Toward the end of March, Equinix restricted access to visitors, customers, customer contractors and non-critical vendors inside its facilities in France, Germany, Italy and Spain, in response to global guidance around social distancing.

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Meanwhile, Facebook has temporarily suspended data center development in Huntsville, Ala., and in Clonee, Ireland. The social media giant was working on a new $750 million facility in Alabama, which was slated to be operational by year’s end. In Ireland, the tech firm was working to nearly double its existing 925,000-square-foot campus, which opened in 2018. The company was forced to halt construction because of COVID-19.

On the other hand, Foxconn is reportedly continuing the development of its Wisconn Valley Science and Technology Park in Mount Pleasant, Wis., even during the state’s stay-at-home order. The Taiwan-based company is working on the future High-Performance Computing Data Center, a nine-story structure. The campus could employ as many as 13,000 people by 2022, according to the firm’s deal with the state. However, both construction and hiring have lagged significantly.  

The strain on data centers

Thierry Breton, the European Union’s commissioner for internal market and services, has urged streaming platforms to reduce video quality in an effort to prevent an internet collapse as a result of an unprecedented spike in usage. So far Netflix, YouTube, Amazon, Facebook and Disney have limited the quality of video streams across Europe. 

Web traffic has not only increased since the first weeks of the pandemic, but it has also shifted away from cities toward the suburbs. According to Cloudflare, internet traffic dropped in most major cities, but rose in suburban areas, as many companies urged their employees to work from home.

The stock market’s response

The stocks of some major tech companies, including Apple, Microsoft, Google and Facebook, were down by at least 2.5 percent and by as much as 24.9 percent for the year, as of April 6. Meanwhile, data center firms have experienced the opposite trend. Equinix stocks, for instance, were up by 7 percent for the year, while the year-to-date net change for Digital Realty Trust was double—14 percent. At the same time, the stocks of smaller data centers players, such as Switch, were up by 1.7 percent, following two weeks of recovery from a significant plunge.

While publicly traded REITs witnessed losses of more than 25 percent in the first quarter, according to NAREIT, the data center segment was the only one to see an increase in the first three months of 2020. The segment, which includes Equinix and Digital Realty Trust, grew by 8.8 percent.

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