Five data centre location trends for 2018

Demand for data processing and storage continues to grow exponentially. Turner & Townsend’s Dan Ayley caught up with Ed Ansett, co-founder of i3 Solutions Group and William King, lead Data Centre surveyor for Colliers in EMEA, to discuss the specific trends of the industry and what they mean for data centre locations around the world.

1 - Established markets will continue to grow

“Every year we create more data than all the other previous years put together” comments King. “...Established markets will continue to grow,” predicts Ansett, “and that’s because we — the public — want more connectivity and more storage.”

In Europe the renowned industry acronym “FLAP” lists the leading markets (Frankfurt, London, Amsterdam and Paris), though not in that order – with London the clear leader. “London is almost twice the size of Frankfurt in terms of space or usage,” says King.

This time last year there were fears in the UK that Brexit could impact negatively on the data centre sector. To date there has been little evidence of this trend, despite the “overheating” market conditions in Frankfurt reported in Turner & Townsend's recent DCCI report. King commented, “I don’t think London will ever be caught up by Frankfurt. London might take a temporary hit in demand, but it will recover.” Published take-up data for 2017 as well as known capital investment for London in 2018 support King's opinion.

However, don’t expect growth forever, says Ansett: “Storage is still cheap, but for how long will that be the case? Imagine 2038. Do you think we’re going to keep storing all this data?”

2 - The edge moves out

The ever increasing demand for streaming via applications like Netflix or YouTube, combined with online gaming, is putting strain on our network infrastructure. There is also the rise of the Internet of things (IoT) and autonomous vehicles to consider.

Public demand for speed is driving the growth of edge facilities, says Ansett: “Streaming video and gaming are the biggest factors in the edge market. They’re applications where users won’t accept latency.

Ultimately this drives the requirement for new facilities and expanding networks, bringing data storage and processing closer to the end user.

We can definitely expect more of this in the near future, says King: “An edge facility is just a smaller data centre, built close to the end user. It’s not a new concept, it’s just a hot topic and will soon enough fade back to being accepted as normal.”

3 - The Scandinavian appeal

Last year Norwegian-American data centre company Kolos announced that it plans to build the world’s largest data centre complex in Ballangen, Norway. Whether it will be the largest by the time it is built remains to be seen, but at 6.46m sq ft (600,000 sq m) and drawing 1,000MW of electricity, it will certainly be one of the giants.

The naturally cool climate, cold water from fjords and cheap hydro power were among the attractions listed by Kolos demonstrating the sustainability agenda. These are attributes which make all the Scandinavian countries, and in particular Norway, Sweden and Denmark attractive to data centre providers.

“In terms of colocation, Stockholm is the seventh best-connected city in the world,” says King. “It’s the financial capital of the Nordics and the gateway to Russia. Stockholm’s fibre connectivity is unrivalled in region, although the Havfrue consortium, of which Google Cloud is a member, recently announced plans for a new cable to connect the US to Denmark, Norway and Ireland.

Around $US3bn was invested in data centres in the Nordic region in 2016 and 2017, according to research by specialist information provider BroadGroup published in September last year. The researchers predict that third-party space in the region will increase by over 25 percent by the end of this year.

How to rival Nordic green credentials?

At the end of last year, Google announced that it had reached 100 percent renewable energy in 2017, matching its energy consumption with renewable energy purchases. This makes it the world’s biggest corporate buyer of renewable energy.

Will other cloud providers follow suit? The short answer is no. “Nothing will happen unless there’s a financial incentive,” says Ansett. “Data centres have got to compete, so governments will have to step in with incentives, to make it appealing.”

King suggests that a stick rather than a carrot can have good effect: “Governments naming and shaming cloud providers who have unsustainable energy practices seems to make a difference,” he says.

Fuel cells are another option. eBay led the way with this technology in 2013 when it did a deal with alternative energy company Ormat Technologies. More recently Equinix announced it will extend the use of fuel cells from one site to 13, with a power purchase agreement in place for a total of 37MW of generation capacity.

“The whole thing is predicated on green policy, sustainable solutions replacing fossil fuels. But the relative cost of gas can make fuel cells not financially viable,” comments Ansett.

It seems we can expect the biggest players in developed economies to pursue sustainable solutions while others wait for evidence of economic – as well as reputational – benefits.

4 - China to boom

“China is going to continue to grow and be massive,” says Ansett. “Just the sheer scale of data centre build is unprecedented compared to any part of the world right now. The challenge with China is that there are only a handful of international companies building data centres there.”

China’s cybersecurity law, requiring providers to store personal information within mainland China, have helped to precipitate the data centre building boom. Apple was one of the first companies to announce a new Chinese centre, with a planned US$1bn data centre in Guizhou.

New centres are more likely to be located in rising city zones such as Hangshou, Tianjin, Chongqing and Chengdu rather than in China’s traditional data centre hubs - Beijing, Shanghai, Guangzhou and Shenzhen – where land is expensive and planning permission is difficult to obtain.

One big stumbling block to outside investors is regulation. Any cloud service provider must have an Internet Data Centre (IDC) licence and any overseas company must have a Chinese partner.

“Licences are hard to get, it’s not as straightforward,” says Ansett. “There are not a lot of businesses that have one. I can only think of three large foreign companies that have IDC licenses in China.”

5 - Emerging: Africa and Latin America

The whole of Africa promises huge growth for the data centre market. But this continent will be following its own rules when it comes to internet usage and demand.

“Africa is almost skipping the stage of developing its fibre infrastructure,” comments King. “People are going straight to mobile devices for their connectivity.”

Ansett agrees and predicts that once geopolitical considerations are right, the market there will explode. “Mobile penetration is huge there,” he says. “Developing economies are going to skip the whole infrastructure stage and even 3G and 4G, and go straight to 5G. I think the Africa data centre market will go gangbusters as soon as people think the investment is safe.”

Latin America offers similar opportunities and risks – albeit on a smaller scale. Companies are already venturing into some of the regions’ markets there. In the beginning of 2018, EdgeConneX announced its first South American data centre would be in Buenos Aires, Argentina. Then cloud and network provider Interoute announced it was setting up a Virtual Data Centre zone in São Paulo, Brazil.

For further information, contact:

Dan Ayley

t: +44 (0)207 544 4000