Web Growth Resulting in Data Center Boom

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Data center facilities equipped with computers that are used for processing or transmitting data, are back in demand.

With the internet boom and the increasing number of companies outsourcing their data storage, demand for these buildings can only increase.

However, with the emergence of many million-dollar internet based companies, data center builders have more reasons than one to worry. Competition has become fierce.

The amount of dollars that go into building and maintaining such vast centers, and with the influx of new participants in this real estate sector, data center operators are skeptical, thinking the peak may be past.

U.S. boom

Key markets from New Jersey to Silicon Valley, there are signs that supply is catching up with the needs of the telecommunications, Internet and other companies that rent space from data-center landlords. Adding to the concern, some large tenants, such as Facebook Inc., are building their own facilities and avoiding paying rent to outside developers.

Some who had predicted trouble in the industry in recent months say demand is holding up better than they had expected.

Ross Nussbaum, an analyst who follows real-estate stocks for UBS AG, published a research note in December warning data-center developers were trading at “unsustainably high valuations” despite slowing growth, rising competition and pricing pressure.

Yet so far this year, shares of the largest data-center real-estate investment trust, Digital Realty, are up 24%, outpacing the 11% gain in a Dow Jones index of real-estate stocks.

“The amount of capital going into data-center construction is remarkable,” says Stephen M. Smith, CEO of data-center operatorEquinixInc.

This year alone, Equinix, which runs 98 data centers, has set plans to build or open new facilities in Amsterdam, Paris, Dallas, New York and near So Paulo, Brazil.

Equinix plans to spend $615 million to $665 million in 2011 on capital projects, primarily data-center expansion. But even Mr. Smith says overbuilding in the industry “is a main concern.”

Middle East boom

Middle East companies are opening two to three times more data centers than competitors in other parts of the world but the region is still not using the most sophisticated technology needed to compete globally, suggests new research by Oracle.

Comments gleaned from a new survey of 919 managers in nine regions around the globe for the Oracle Next Generation Data Centre Index showed that on average, companies scored 5.28 on a scale of one to 10.

Data centers in the Middle East ranked lowest on the list with a score of 4.41, suggesting that more effort is needed to embrace technology that gives the region the edge over competitors.

Oracle said in a statement released at its Dubai Internet City offices that “businesses in theMiddle East and some other regions are lagging behind in their use of innovative technology in data centers, which means they are unable to meet industry demands and respond to change quickly.”

Marc Heger, senior director Hardware Mena for Oracle, presented findings inDubainoting that the survey was conducted to gauge readiness of companies on key critical issues such as flexibility, supportability and sustainability. The survey responses in the Middle East showed that 37 of the organizations polled had very little system management in place, another 52 per cent had under 10 per cent server utilization and that only 37 per cent have taken action on consolidation.

Heger, however, said that the responses show that there is plenty of opportunity in the region now to build a more competitive data centre environment to compete globally.

“We think it’s a perfect opportunity to adopt new technologies,” he said.

In an interview with Gulf News earlier this year, Malek Al Malek, managing director of Dubai Internet City, said the Dubai Outsourcing Zone near Academic City is growing steadily thanks to cloud computing and a strong demand for new data centers.

This being said, there is no doubt that the Middle Eastcould soon become a strong market for data center builders looking for greener pastures.

Sources: Gulfnews, Wall Street Journal

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