the new oil? 

Demand for data centers is exploding, thanks to COVID-19 forcing people to live more virtual lives during lockdown

September 17, 2020

We rarely see them, but they help power our everyday lives. Data centers – which house the servers that support cloud-based services – make so many activities we enjoy possible: from streaming music to binge-watching the new season of our favorite show.

And the demand for these spaces has never been greater. COVID-19 is driving this need, with lockdowns forcing people to live their lives even more virtually – from business meetings to grocery shopping.

In this episode, James Cook talks with David Barnett, Americas Research Manager at JLL, and author of the new report, “Data Center Outlook - H1 2020.” They discuss all things data centers: the booming need for them, their key markets, their outlook, and what life could look like without them. They also share why investing in data will become increasingly crucial for business success down the road.

James Cook: [00:00:00] The world runs on data from the logistics required to deliver a package to employee scheduling software to that movie that you stream at night at home, it's all communicated in the form of digital ones and zeros. And maybe that's why they say data is the new oil. This is building places, where we look at the world of commercial real estate through the eyes of the experts that study it every day.

[00:00:28] My name is James Cook, and I researched real estate for JLL. Today. We're digging into the incredible demand for data centers. I'm talking to my colleague, David Barnett.

[00:00:40] David Barnett: [00:00:40] I'm David Barnett. I am a manager for Americas research. I help lead our corporate solutions and IPS research for JLL.

[00:00:47] James Cook: [00:00:47] So today, we’re talking data centers. It's just like a big warehouse that you put servers in.

[00:00:55] Right? That's how you'd describe it to somebody?

[00:00:57] David Barnett: [00:00:57] Exactly. And if you go in one, it kind of resembles a James Bond setting with the security they have. You go into these big rooms have to be cooled for all the computing going on.

[00:01:08] James Cook: [00:01:08] So it's just rows and rows of shelving with computers on them and probably like a small handful of technicians onsite, but it's mostly just real estate for computers.

[00:01:20] David Barnett: [00:01:20] Exactly. You got racks of different space and servers throughout the floor.

[00:01:23] James Cook: [00:01:23] When we talk about data centers, we're really just talking about the cloud. Any computing that's not on your personal device or a laptop, it's all happening at a data center somewhere.

[00:01:34] David Barnett: [00:01:34] Yeah, all that data has to go somewhere – has to be computed somehow. Either that's internally, or you can do it externally.

[00:01:40] And that's where we have a variation of private versus public clouds.

[00:01:44] James Cook: [00:01:44] Oh, tell me a little bit more about that. I don't know about that distinction.

[00:01:47] David Barnett: [00:01:47] So private cloud would just be basically in-house data hosting. Or you can go public cloud – you kind of outsource your data hosting and management. That helps you have some sort of agility or flexibility with your data hosting.

[00:01:58] James Cook: [00:01:58] I imagine it'd be easier to outsource that hosting. Do you think that's more popular?

[00:02:04] David Barnett: [00:02:04] That's really where the shift has been. If you look in some markets, that cloud is driving upwards of 80% of activity. That's true in Northern California, that has been the case.

[00:02:12] James Cook: [00:02:12] Since we've been following our stay-at-home routine, I've been watching more movies on Netflix.

[00:02:19] I am ordering food from websites. I'm ordering goods from websites. I'm doing all of my work meetings virtually. I'm imagining everybody's doing that. So, has that seen a huge increase then in demand for data centers?

[00:02:35] David Barnett: [00:02:35] Definitely. So there's been an immediate need to fill that gap. That's why you've seen not just grocery shopping or whatever it is, and, you know, online e-commerce, whatever it may be.

[00:02:45] But you're seeing that with, you know, virtual connectivity, through different companies for their employees. You've seen those just skyrocket and the number of users. So all of this is putting additional immediate demand on data centers. So if we look at the same kind of core markets, you know, going back to the first half of last year, we've actually seen demand go from about 170 megawatts

[00:03:04] to about 280 megawatts. So megawatts are just that computing power a company actually leases.

[00:03:09] James Cook: [00:03:09] I'm a real estate person. So I think about square feet, but when you're leasing server space, you're leasing a megawatt. Is that like just a measurement of how many computations are being done?

[00:03:23] David Barnett: [00:03:23] Right. And it's not necessarily megawatt.

[00:03:25] It could be smaller than that. It could range from anywhere from 250 kilowatts and greater. Some of the biggest deals are going to be a megawatt – three megawatts, even. So yes, it's pretty much you're purchasing that power.

[00:03:37] James Cook: [00:03:37] Are there particular places that are preferable to put a data center or can you really just put one anywhere?

[00:03:42] David Barnett: [00:03:42] Yeah, there's definitely some key markets. At least domestically in the U.S., Northern Virginia is the leading market. Also Phoenix. If you look at Northern California, lives that have to do with, you know, tech companies obviously pushing all that data out. But also government, as well, which you see in Northern Virginia.

[00:03:58] James Cook: [00:03:58] There's been more of a demand in terms of megawatts. Has pricing gone up because of this increased demand?

[00:04:05] David Barnett: [00:04:05] So what's funny is that in many markets, there's actually a ton of supply and a lot of competition among operators. And this includes Northern Virginia – we've actually seen some rent compression. That's actually led some operators to expand outside the US, to really expand presence in Europe and APAC.

[00:04:20] So when you look at M&A activity outside of the US, you really see big expansions throughout Europe to get better returns because in the US, you're seeing some rent compression overall. So the key markets in Europe is going to be what we call the FLAP markets: That's Frankfurt, London, Amsterdam, and Paris.

[00:04:37] So those are the major hubs that you see in EMEA when it comes to data centers.

[00:04:41] James Cook: [00:04:41] And by putting a data center in those FLAP markets – I love acronyms – those FLAP markets, you're going to be able to service the populations of Europe. Right?

[00:04:51] David Barnett: [00:04:51] Exactly.

[00:04:52] James Cook: [00:04:52] OK. So from an investor standpoint, we're talking about real estate rates.

[00:04:56] What's the outlook? I mean, is it a positive outlook for data centers?

[00:05:01] David Barnett: [00:05:01] So far, if you compare all the sectors right now in the midst of COVID and the pandemic, data centers have actually seen the greatest returns so far. If you look at any rate, they define, you know, the returns as the stock dividend income plus capital appreciation

[00:05:14] Before you take an account taxes or commissions. And as of late June, they saw 19% returns. And the only other positive impact we saw was industrial, and that was 2.3%. So that's ahead of residential, office, healthcare, retail and hospitality.

[00:05:28] James Cook: [00:05:28] Now, is there a worry at all that there'll be too much data center capacity?

[00:05:33] David Barnett: [00:05:33] There's always some concern with that, right? I mean, in the US, you're seeing some rent compression, because you've seen some supply and a lot of competition among operators. In Northern Virginia, there's a record amount in their pipeline of supply coming on. I think there's over 600 megawatts. So there's definitely some concern of maybe too much supply, but I think long-term, data centers are going to be needed.

[00:05:52] You know, a lot of people have said, data's the new oil. And people will only keep increasing their investments in data.

[00:05:59] James Cook: [00:05:59] David, I think you just gave us the name for this podcast episode: Data is the new oil. That is so interesting.

[00:06:07] David Barnett: [00:06:07] I don't think I came up with it. I read it somewhere.

[00:06:11] James Cook: [00:06:11] Give me a little color around that.

[00:06:11] What do they mean? Like that's the place where you're going to make it rich now?

[00:06:15] David Barnett: [00:06:15] Data will just be everything. We have to be invested in data. Even if you're not making money off it, you need it to just run and operate your business. You know, you need it for employee attraction, retention, whatever it is, you just need to run on it.

[00:06:27] I think what's really interesting is that some of these operators, even if there are COVID impacts on manning and operations and staffing issues, they've largely been unscathed from COVID. So if I'm an operator and I've, you know, a bunch of different tenants, only a small set of those are tenants in the hospitality, maybe the retail sector.

[00:06:44] So they have a really diverse tenant scene and they have little exposure – they've been able to absorb some of those impacts from those direct industries. And they've actually seen a lot of backlogs in their revenue streams. These are some of the biggest backlogs we've seen on record in these companies’ history.

[00:06:57] That includes QTS and CyrusOne, one of the two major REITs. So that's really gonna fuel some growth for next year, by year end.

[00:07:05] James Cook: [00:07:05] What would happen – let's just imagine, for a moment, if we were to lose our access to the cloud tomorrow, is there any part of our lives that would continue on as normal? I'm trying to think.

[00:07:16] Well, I could still have my breakfast cereal, but I couldn't listen to NPR because I listened to that streaming now – stopped using radio years ago.

[00:07:26] David Barnett: [00:07:26] Redundancy is a huge component of building out these data centers, meaning that power generation's super important. The cooling systems are important. So these things are really built to go through any worst-case scenario.

[00:07:38] And that brings up other considerations of whether it's climate risk and the location or choosing, whatever it may be. But hopefully, you know, we never get to that point. And if we do, I guess people can go outside, get some fresh air and enjoy some silence for a little while.

[00:07:52] James Cook: [00:07:52] I'm sure people appreciate not doom-scrolling on Twitter for a few hours, but you know, in balance, I think we benefit more from the cloud,

[00:08:04] if anything else. David you are just wrapping up a report on data centers. I'm assuming folks can go to and find that for download when it comes out.

[00:08:14] David Barnett: [00:08:14] You'll see our practice gripper desks at our practice group, all our contacts for the local markets we cover, and more

[00:08:20] James Cook: [00:08:20] Probably just go to and search for data centers?

[00:08:22] David Barnett: [00:08:22] Exactly.

[00:08:23] James Cook: [00:08:23] Well, thank you so much for joining me today.

[00:08:26] David Barnett: [00:08:26] Yeah, thanks for having me. It's good talking

[00:08:27] with you. If you like listening to Building Places, do me a favor and tell your friend about it. Tell them they can subscribe to Building Places on the iPhone podcast app or on Spotify or wherever it is they listen to podcasts. Or they can stream us on the web at

[00:08:49] If you've got a question you'd like for us to tackle in a future episode, or maybe a comment about today's episode, you can leave a message on the podcast hotline and, hey, we might even use your voice in an upcoming show. Give us a call: (602) 633-4061.