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20 | THE DATA CENTER JOURNAL A nalysis of these insights, along with the latest market data, paints a rich portrait of a sector working to reach its stride. e story is still unfolding, but right now we see a sector that's still growing in size and revenue, albeit at a more measured pace than was seen during "the Great Absorption of 2016." e following are some of the industry trends that brought us here: fresh-off-the-line real-estate statistics and insights, and the rich potential for operational innovations that in- dustry leaders are now considering. THE BACKGROUND: MOVING CLOUD STRATEGY, RAMPANT M&A Data center real estate is deeply influenced by the larger industry climate. Right now, that climate is exceedingly friendly for M&A and cloud adoption. Just in the first half of 2017, M&A in the sector surpassed $10 billion—a staggeringly far cry from the $2 billion that traded hands throughout 2016. So far, we've seen mega-mergers such as Digital Realty's $7.6 billion acquisition of DuPont Fabros and the formation of Cyztera Technologies at $2.8 billion, as well as a couple of others in the billion- dollar ball park. e second half of the year is likely to be just as active when it comes to consolidation, as large-scale providers keep up the acquisition spree to expand their service offer- ings and market footprints. We're also expecting continued momen- tum from smaller players vying to compete with the major companies through strategic acquisitions. e other major market driver is the evolution of cloud strategy and adoption, which continues to feed market demand across the country, and internationally as well. Of the 18 major data center markets we track in the United States and Canada, 11 are seeing roughly one-third of user demand coming straight from cloud services. Some of the nation's hottest markets claim even more, with cloud demand in Northern Virginia, Aus- tin/San Antonio and Chicago con- stituting closer to three-quarters of the demand. All told, cloud-service providers remain the number-one source of demand so far this year. Globally, growth rates are even more dramatic. We're seeing a signifi- cant uptick in international data cen- ter markets related to cloud leasing and services. e uptick is partly a result of continuing data-sovereignty and privacy-policy regulation. But it's also a simple matter of supply and demand: as the thirst for data con- tinues to expand, more providers are expanding worldwide to quell it. THE SETTING: SLOW AND STEADY WINS THE REAL- ESTATE RACE Construction is up, as is de- mand for existing space—and yet data center leasing is muted com- pared with 2016. Most markets currently have larger construction pipelines than were seen at this time last year. In North America, 506 megawatts (MW) are now under construction, while only 353 MW were under way at the same halfway point last year. Case in point: construction in North- ern Virginia is up 57 MW year over year, Toronto is up by 41 MW, and Dallas/Fort Worth is up by 31 MW. Dallas-Fort Worth, for its part, is up 50 percent compared with this time last year. One important driver of new development? In addition to simply meeting escalating demand, legacy data centers can't always accom- modate newer technologies and rack requirements. On the leasing front, U.S. ab- sorption has returned to normalcy aer record leasing last year. In the first half of 2017, U.S. markets have leased 186.2 MW of space—a considerable slowdown in the frenzy that had taken place by this same time last year, when leasing reached 249.1 MW. Canada is another story, however. Toronto and Montreal together have seen 35.1 MW so far in 2017, or 10 times more than last year at this point. Subtle demand in the United States, however, is no indicator of lagging interest in quality data center space. Rather, the big players are focusing on how to organize and op- timize the exorbitant footprints they picked up in 2016. THE NOW AND FUTURE POTENTIAL: INNOVATIVE REAL- ESTATE TECH OFFERINGS Complex cooling, utilities and construction needs aren't exactly new to the industry. What's new are the ways data centers can and are tackling the challenges of growing computing demand. Advanced facilities are offering bigger buildings and rooms, provid- ing flexibility for users in configuring their data centers. Facilities catering to enterprises are offering a larger selection of services and amenities to differentiate themselves from the competition. Many also are investing in cutting-edge technology to optimize cooling and reduce energy use as well as mitigate today's high-power, heat- generating processors. For example, new chiller technology can operate in ambient temperatures up to 105 degrees Fahrenheit—a valuable ad- vance for an industry that has grown alongside the rise of global warming.

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