Analysts from Oppenheimer say demand for data center space remains strong, and investor concerns about a potential oversupply of new data center space "are overblown." The report, issued Wednesday prior to the strong earnings from Equinix (EQIX), said the environment for colocation and managed hosting providers remains favorable.
"Based on our comprehensive bottom-up analysis, we believe that after briefly catching up with demand in 2008, new colo supply will lag demand in 2009-10," wrote analysts Srinivas Anantha, Tim Horan and Peter Armstrong, who project that demand for new colo space from 2007-10 will exceed supply by about 800,000 square feet. "We believe these trends are generally favorable for the entire enhanced data services industry and show a starkly different dynamic to that seen in the downturn of 2001-2003."
The Oppenheimer analysts also suggested that some investors are double-counting new supply of data center space by failing to distinguish between announcements by "wholesale" landlords like Digital Realty Trust (DLR) and DuPont Fabros (DFT) and "retail" tenants who announce leases.
Here's an example, based on our reporting, that illustrates this challenge: In 2007 Digital Realty, Savvis (SVVS) and AT&T (T) all announced new data center space in Piscataway, New Jersey. The three announcements total 464,000 square feet of space. In fact, Savvis and AT&T each leased floors in Digital Realty's 288,000 square foot building.