Last month we wrote about the potential that colocation prices could rise as data center space runs short due to mothballed construction projects. The Wall Street Journal (subscription) has now written about this trend, noting that "demand is outpacing supply, and that could potentially drive up prices of data-center services."
Wall Street's recognition of the looming data center space crunch gave a powerful lift to the shares of companies in the colocation business yesterday, and the Journal's coverage may help investor sentiment about the industry. Shares of data center companies experienced steeper losses than broader industry indices during the recent stock market collapse, with most declining by 40 to 75 percent for 2008.
The biggest winner in Tuesday's trading was DuPont Fabros Technology (DFT), whose shares have been battered since it suspended construction on three large data center projects. Shares of DuPont Fabros jumped 34 percent yesterday, closing at $3.68 per share. The value of DFT has doubled over the past five trading sessions.
Other companies in the colocation and hosting sector with gains include:
- Switch and Data (SDXC), up $1.02 to $9.97, up 12.8 percent
- Savvis Communications (SVVS), up 77 cents to $8.48, a gain of 10 percent
- Terremark Worldwide (TMRK) rose 31 cents to $4.19, up 8 percent
- Rackspace (RAX) , with a gain of 24 cents to $4.49, up 6.9 percent
- Internap Network Services (INAP) added 19 cents to $6.40, up 6.4 percent
- Equinix (EQIX) rose $3.62 to $62.89, an improvement of 6.1 percent
The Journal report cited predictions by Tier 1 Research that demand for data center space will grow significantly faster than supply, as the credit crunch makes it more difficult to get funding to build new facilities. The story cited pricing trends in the London data center market, where new supply has been constricted to the availability of space and power.
Somewhere near 80% capacity, the market hits a point where demand outstrips supply to a point where prices skyrocket. That is the case in London, where commercial data centers are operating at about 85% capacity. Prices at the London centers have doubled over the past year to $115 to $290 a square foot, says Rakesh Kumar, an analyst with research company Gartner.
Stock prices for data center companies remain dramatically below levels from early September, prior to the U.S. financial collapse, and one day's trading is not a trend. But the solid bounce suggests a welcome shift in sentiment on the data center sector.