Why Colo Data Centers Are Performing Well Despite Economic Uncertainty

By the time the dust settled on Q1 2020, data centers were the only REIT sector with positive returns.

The first two quarters of 2020 were filled with uncertainty, and the second half of the year promises more. After the Dow Jones Industrial Average plummeted in late March, it has been on the rise again, despite record levels of unemployment. Although major economic sectors have taken a beating in recent months, technology companies have led the way toward a brighter economic future.

In late June, CNBC reported that the Dow was down only 8.81% over the previous year. While that figure might have been disappointing in any other year, it seems like a modest decline in light of the broad effects of the COVID-19 pandemic. Throughout most of Q2, technology stocks have bolstered the performance of both the Dow and the NASDAQ, with companies like Apple and Microsoft posting positive numbers. In fact, tech-heavy NASDAQ has experienced record highs, post-COVID.

Considering this, it should be no surprise that the infrastructure supporting these brands is also doing well. After all, without reliable data centers, companies like Zoom and Netflix would be unable to do business.

Data centers weathered the storm in Q1

When the stock market hit its 52-week low on Mar. 23, the outlook for the economy looked grim. However, data center stocks were one of the few bright spots. As communities across the globe enacted lockdown policies to mitigate the spread of the virus, data centers kept the internet running smoothly. On Mar. 26, when the average real-estate investment trust (REIT) was down by 32%, data centers were only down by 7%.

As social distancing became the norm, investors realized that colocation data centers would be more important than ever before. With populations stuck at home, internet usage skyrocketed, especially for video calls and streaming. When the dust settled on Q1, data center returns were up by nearly 10%, while all equity REITs were down by approximately 23%. In fact, data center REITs were the only sector with positive returns.

Moving into Q2, internet usage continued to grow. According to Global Market Insights, a market research firm, the video conferencing market size surpassed $14 billion in 2019 and is anticipated to grow at over 19% (continued annual growth rate, CAGR) between 2020 and 2026. The advent of several technologies, such as cloud computing, IoT, AI, VR, and advanced video compression, is expected to drive the market growth.

Internet usage also shifted geographically. As office buildings sat empty, internet usage dropped significantly in central businesses districts and rose in the suburbs. The decentralized design of the infrastructure supporting the internet meant that this sudden shift caused almost no issues at the user level.

Colocation data centers will continue to hold steady in the future

The COVID-19 trial by fire has shown that colocation data centers, with their keen focus on safety, security and uptime, are prepared to handle challenges at any scale.

As of July 28, the New York Times reported that more than 4,303,800 people in the United States have been infected with the coronavirus and at least 148,400 have died. At the end of Q2, with COVID-19 cases rising in more than 20 states, it’s possible that communities will have to return to lockdown to avoid overwhelming their health care systems. That would mean more indoor time for the nation, and therefore more time spent watching streaming video, chatting with friends and family online and shopping from ecommerce sites. While the possibility of a recession comparable to 2008 remains, these activities will continue to drive the demand for data center solutions. In fact, IT may be one of the few expenses that businesses can’t afford to cut as their employees continue to work from home.

It is worth noting that many technology companies, including Google, have already announced they will not return to their offices until 2021. Also, there is uncertainty on how schools will reopen in the fall, with many proposing the adoption of some form of hybrid in-person/ online programs. On a positive note, companies, students and parents have discovered that there is an upside to remoteness and that even the negatives – parents having to cope with kids at home and needing to be educated – will stimulate innovative solutions

In keeping up with the exponential growth of internet usage, colocation data centers will remain a strong, foundational element of the global economy.

To learn more about what Sabey Data Centers is doing to continue to provide an exceptional level of customer service, read this message from President Robert K. Rockwood.

Will Your Data Center Support Growth?Scaling a data center is one of the most challenging tasks an organization can face.

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