In this exclusive interview, HostingJournalist sat down with Ivo Ivanov, CEO of DE-CIX, to discuss the evolving challenges and trends affecting New York businesses due to the growing influence of hyperscalers on the city’s data center landscape. Mr. Ivanov shares his insights on how hyperscalers are reshaping data infrastructure, the resulting impact on existing tenants, and the strategies businesses are adopting to navigate these changes.
“There’s no doubt that hyperscalers are needing more data center space than ever before, and in densely built environments like New York, this is significantly reshaping the landscape of the city’s data infrastructure. Large cloud service providers require a great deal of space and power to support their operations, and their presence in the market has naturally driven up demand for data center space in the city. Of course, Google’s purchase of the multi-tenant facilities at 111 8th Ave in 2010 is an example of the demand, but hyperscalers are also renting colocation space in order to meet their increasing needs.”
“There are several trends that emerge out of the increased demand, with existing multi-tenant data centers transitioning to single-tenant facilities, or facilities catering to only a few large-scale strategic customers. Pre-leasing of newly constructed facilities is becoming the norm – not only in NYC, but across the country – and the tenant may well be a single hyperscaler, even if the data center was original conceived as a multi-tenant facility. This has advantages for the tenant because it means that the hyperscaler can outfit the space better to their needs, instead of retro fitting an existing multi-tenant facility. It also allows them to finalize projects more quickly to meet demand spikes. Increased demand also means that data center operators themselves are running out of access to power, driving them outside the city to find space for new constructions.”
“Many growing businesses and smaller telco companies are unable to expand and fill their customers’ needs as their demands increase. These companies are often forced to relocate their data operations to areas outside Manhattan, such as New Jersey or Orangeburg, where space and power capacity are more readily available. This move, however, brings its own set of challenges, including increased latency and other operational complexities. This consolidation of data center space has undeniably increased the pressure on New York’s data infrastructure, and businesses are having to adapt quickly to maintain operational efficiency and connectivity.”
How are New York businesses, both large and small, managing the challenges of data center availability in NYC?
“Many New York businesses and smaller telco operators are having to consider relocating their data operations to areas outside of Manhattan, where space is more readily available. While this is a perfectly viable option, it’s certainly not without its challenges. For larger companies, in particular, it will take significant logistical planning and investment to ensure business continuity and uninterrupted high-performance connectivity. Many are opting for nearby locations like New Jersey and Orangeburg, which offer more space and power capacity. However, one concern is the risk of becoming isolated from the vibrant ecosystem of the Big Apple, resulting in the needs for additional connectivity service providers, as well as increased latency, and delays in accessing critical data. More so for operations that require real-time data processing and low-latency connectivity.”
What role does DE-CIX play in this evolving NYC data center landscape and its challenges?
“One of the biggest challenges that these businesses will face with growing outside of Manhattan is connectivity. Internet Exchanges (or IXs) facilitate direct peering between networks, which ensures minimal latency and higher security compared to using IP Transit, where data travels over the public Internet with less control over routes and handover points. As the largest carrier and data center neutral interconnection ecosystem in North America, DE-CIX New York interconnects 30 data centers across the metropolitan region, both within and outside of Manhattan, providing businesses with robust, low-latency connections to the critical networks housed in Manhattan. This distributed interconnection model allows businesses to maintain efficient and secure data flows, even when their primary data centers are located in New Jersey, Orangeburg, or other outlying areas – ensuring they remain part of New York City’s vibrant digital ecosystem regardless of their physical data center location.”
“At DE-CIX New York, we serve so many data centers outside of Manhattan. This allows connected networks more options, while keeping the same level of connectivity that they are accustomed to in the heart of the city. We facilitate customers’ expansion by offering them contractual flexibility and allowing them to move their ports at any time as they expand. This way, they have access to the New York ecosystem, without having to colocate in the central business district. We are really empowering smaller companies to be able to achieve same level of connectivity of Manhattan – but outside the city.”
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What policy measures, if any, could municipal or state authorities consider to address the impacts of hyperscaler data center acquisitions?
“This is a complex and fast-moving picture. First, incentivizing the development of data centers in underutilized areas within the metropolitan region could help distribute the load more evenly. That might include tax incentives, grants, or even streamlined permitting processes for data center construction in locations like New Jersey, Orangeburg, and upstate New York. I would also note that investing in the expansion of the region’s power infrastructure is crucial. Ensuring a stable and scalable power supply will make it more feasible to develop new data centers outside the crowded urban core.”
“Fostering a supportive regulatory environment for the establishment and growth of neutral interconnection ecosystems like DE-CIX’s will also pave the way for enhanced connectivity and reduce the operational challenges businesses face when it comes to growing and expanding their business.”
Are there alternative solutions for New York businesses that cannot afford to move their data operations out of town?
“It is a question of what is meant by not being able to afford to move. If we are talking about the costs of moving, they need to be weighed up against the lower costs of colocation facilities outside of Manhattan. In the long run, a move will result in cost benefits if it is approached properly.”
“If, on the other hand, a company is concerned about the latency that may be involved in having data stored further out, then the choice of data center is critical. Certainly, companies in sectors like financial services require low, single-digit millisecond latency to relevant networks. The same goes for other critical services, for example in the area of telemedicine. For most other companies, a latency of 10-15 milliseconds provides first-class connectivity. If the company chooses a data center which houses a distributed IX platform, then they can afford to be a bit further away from the center of the ecosystem.’
“The other thing is, there is still space in Manhattan. It’s just that the available spaces tend to be small and a bit piecemeal. A company may need to make some concessions or consider alternative models. Through our interconnection platform, we can facilitate the connection of these less ideal spaces with their current spaces as companies grow – because we can serve everywhere in Manhattan. We can help make it work, so they don’t have to move everything, but can still expand, However, if they are bought out of their space, they would have to fully move – but it still might be possible within one or several Manhattan facilities.”
Based on current trends, how do you see the data center landscape in New York evolving over the next five years?
“As space within the city is limited and the demand for data processing and storage continues to grow, I think we can expect to see increased investment in data center infrastructure in surrounding areas like New Jersey, Orangeburg, and other parts of the region. This is already occurring: In less than a decade, data center capacity in New Jersey has increased by 60%, with a compound annual growth rate of 7.9%, ten times that of NYC, according to data from JLL and Arthur D. Little. This ‘decentralization’ is being driven by both hyperscalers and enterprises seeking more affordable and scalable options. I also think we’ll see a greater emphasis on the use of interconnection ecosystems. Distributed and neutral Internet Exchanges will become more critical as businesses strive to maintain low-latency, high-performance connectivity despite their physical distance from Manhattan.”
As CEO of DE-CIX, what aspects of this trend have you found most notable or unexpected?
“I think what we are seeing now is the nexus of several trends which have been growing for some time now: digital transformation and the growing criticality of data and connectivity for companies, and the increasing use of the cloud. And now we have the very exciting boom in AI services. As AI comes of age, we will see increasing need for low-latency connectivity and edge interconnection, ready to serve AI inferences in real time to support everything from mobility and end-user services through to business decision-making. To be ready for the digital future, digital infrastructure will need to be conceived through the lens of ‘glocalization’ – as local as possible, as national or global as necessary. Not all data processing needs to be carried out in NYC. Training LLMs, for example is not dependent on latency, and can take place wherever the conditions are most conducive.”
“The US has lots of space, and lots of data centers. Our turnkey connectivity solution enables data centers outside of the major metropolitan hubs to provide access to relevant regional, national, and international networks – helping to close gaps in the national connectivity map. For example, we recently announced the interconnection of the NOCIX data center in Kansas City to our New York and Dallas ecosystems. The solution enables regional data centers to extend to the DE-CIX cores, providing instant access to the entire DE-CIX carrier and data center neutral interconnection ecosystem in North America and beyond. Our digital future will depend on the rollout of such infrastructure offerings, providing businesses with the services they need in the most practical and efficient way.”