Q3 Trends: North American Data Center Pricing Jumps 15% YoY; Is AI Inflating the Cloud?

As initially delivered in a LinkedIn Live video presentation last week, DatacenterHawk's 3Q 2023 Data Center Market Recap charted the industry's continued ascent over the year's third quarter, discerning more than 1.4 GW of absorption across major markets globally.

In North America for the third quarter, DatacenterHawk said that the top five data center markets increased their absorption by more than 650 MW, as compared to last year at the same time.

The year-over-year jump in absorption was attributed to the impact of AI requirements, as well as the growth of traditional cloud computing needs across the region.

Atlanta, Phoenix, Dallas, NoVa lead in absorption

In terms of North American data center leasing for 3Q 2023, DatacenterHawk said that Atlanta, Phoenix, Dallas and Northern Virginia led in absorption.

The market recap further noted how, in North American data centers for the third quarter, "prices continue to increase across the board...as vacancies continue to drop."

DatacenterHawk stated that average vacancy rates across North America have dropped 0.5%, from 3.2% to 2.7% quarter-over-quarter.

Meanwhile, the range of market pricing was seen to have increased, indicative of fluctuations in asking rates by market, according to the analyst.

The researcher explained that, in North America, "low vacancies and limited optionality have created a landlord-favorable market."

With demand outpacing supply and asking rates continuing to rise, the analysis determined that North American data center pricing has risen by an average of 15% year over year.

Hyperscale and enterprise forays escalate

DatacenterHawk's market recap also saw hyperscale users' exploration beyond primary North American markets to secondary and tertiary data center markets as an ongoing trend, as evidenced by new developments in such cited areas as Boydton, Virginia and Umatilla, Oregon.

The recap also forecasted that legacy enterprise data centers will continue to be of heavy interest to AI companies seeking to bridge power quickly, as a means of furnishing reserve footprints to enable these companies' expansions over time.

Looking ahead, the researcher projected that submarkets within major markets will continue to grow from hyperscale users' and data center operators' activities, and that "speculative capital will be spent more aggressively in markets that can accommodate campus development" - i.e. easy accessibility to large amounts of power.

DatacenterHawk concluded that major cloud providers continue to account for most of the capacity uptake in North America.

The analyst's market recap added that although the full impact of rapidly growing AI and machine learning activities has yet to be seen, these technologies continue to percolate across US and Canadian markets.

Cloud's Consecutive Growth Streak Continues 

Meanwhile, the latest data from Synergy Research Group (Reno, Nevada) saw third-quarter enterprise spending on cloud infrastructure services exceeding $68 billion worldwide, up by $10.5 billion from Q3 of last year.

With most of the major cloud providers having now released their earnings data for Q3, Synergy estimates that quarterly cloud infrastructure service revenues - including IaaS, PaaS and hosted private cloud services - were $68.1 billion, with trailing twelve-month revenues reaching $257 billion.

The researcher added that public IaaS and PaaS services accounted for the bulk of the market, growing by 19% in Q3.

Marking the fifth consecutive quarter in which the cloud market grew by $10-11 billion from the previous year, Synergy pegged the market's YoY growth rate at 18% in Q3, generally in line with the previous two quarters' annual growth.

The researcher also noted that Q3 cloud spending was up by 5% from Q2, substantially higher than the quarter-on-quarter growth rate seen in the previous two quarters.

Synergy added that, excluding seasonal peaks "always seen in Q4," the sequential growth in cloud spending was the highest it has seen since 2021.

Amazon, Google, Microsoft Grow Q3 Cloud Share

Among the largest cloud providers, Synergy reported that Google and Microsoft had the stronger year-on-year growth numbers, reporting Q3 worldwide market shares of 23% and 11% respectively, with Microsoft's market share increasing by almost two percentage points globally from the third quarter of last year.

Meanwhile, Synergy reported that market leader Amazon continued to reside within its leading market share band of 32-34% - though toward the bottom end of that long-standing range.

In aggregate, Synergy reported that the three cloud giants accounted for 66% of the worldwide market.

The dominance of the major cloud providers was even more pronounced in public cloud, with the top three seen controlling 72% of the market.

Among tier two cloud providers, Oracle, Snowflake, MongoDB, VMware, Huawei and China Telecom were cited as having the highest YoY growth rates.

Amid strong growth in all regions of the world, when measured in local currencies, the researcher found that the APAC region's cloud market grew the most, with prospects in India, China, Australia and Japan all rising by 20% or more year over year.

AI inflating the cloud?

Synergy Research said it fully expects future cloud growth rates to remain buoyant in coming years.

While admitting that current economic and political conditions have put a slight crimp in the projected growth of cloud spending right now, Synergy added that it discerns "clear evidence" of how generative AI technology and services are starting to help turn that tide.

The researcher's latest analysis concludes that AI is helping to open up a wide range of new cloud workloads.

"While the law of large numbers continues to exert downward pressure on cloud market growth rates, AI is giving the market an added boost," stated Synergy.

The analyst added, "Helped by AI, there are signs that many enterprises are through their period of belt-tightening and of optimizing, rather than growing, their cloud operations." 

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