Digital Realty Sees 'Significant' Surge in Demand

Data center demand is likely to surge in the second half of 2008, according to new research by Digital Realty Trust (DLR).

Data center demand is likely to surge in the second half of 2008, as U.S. enterprise companies indicate they will be increasing both the number and size of their data center projects in the next 12 months, according to new research by Digital Realty Trust. The research findings, coming on the heels of a strong first quarter, were among the factors cited as Digital Realty increased its revenue projections for 2008.

"I think we're going to see strong demand for the next 24 to 36 months," said Digital Realty CEO Mike Foust. "By all indicators, these data centers are not discretionary, they're required by these companies for continued profitability. We're also seeing a pretty significant shortfall of supply."

Foust said that the company's internal research suggests that in some key markets new supply will be adequate to meet just 50 percent of the expected demand. Digital Realty (DLR) became the third data center specialist to raise its revenue guidance in recent weeks, following the lead of colocation providers Equinix (EQIX) and Switch and Data (SDXC).

The findings on demand are from a recent survey of more than 300 senior decision makers at North American companies who influence data center operations. The new study was compared against a similar 2007 study. Both surveys were commissioned by Digital Realty and conducted by Campos Research & Analysis. Key findings from the latest research:

  • 86 percent of respondents will definitely or probably expand their number of data centers in the next 12 months, indicating an active phase of data center development during the second half of 2008 and first half of 2009.
  • 45 percent of respondents plan to expand in 3 or more locations. This is an increase of nearly 20 percent over 2007, indicating that the scope of datacenter projects have increased along with the number of projects.
  • Planned square footage for an average expansion site went up 50 percent, from 10,000 square feet in 2007 to 15,000 square feet in 2008.
  • Disaster recovery and Sarbanes-Oxley requirements were mentioned most frequently as key drivers for data center expansions. Power requirements, new applications, more physical space, connectivity needs and cooling requirements were also cited.

"This survey of Fortune 2000 companies confirms what our team has suspected based on conversations with customers," said Foust. "The demand for data center space is, in fact, accelerating. It is particularly significant that 86 percent of companies are planning datacenter expansions in the next 12 months, especially in the context of the current economic environment. Despite the challenging market conditions, companies are making major investments in IT infrastructure, reflecting the critical nature of these assets to today's corporations."

Digital Realty said it is increasing its guidance on funds from operation (FFO) by 5 cents to a range of a $2.35 to $2.45 per diluted share. CFO Bill Stein said the revision was based on leasing activity and a reduction in expected expenses.