Saturday, November 25, 2017

Exclusive. The state of the European data centre market from ownership and expansion to developers and investors’ record-breaking year

Corporates more reluctant on future demand levels for data centre services, whilst developers and investors show the highest positivity about the potential levels of demand.

The European data centre market is in the middle of a large shift driven by events such as the introduction of the General Data Protection Regulation (GDPR) or even Brexit.

Other business considerations such as shrinking budgets and the need to be closer to the user/service are also contributing to the fast-paced change within the industry.

Independent research company iXConsulting has now completed the 14th Data Centre Survey which covers responses from companies controlling around 25 million sqf of data centre space in Europe, “from Iceland in the north to Turkey in the south and from Russia in the east to Portugal in the west”.

Sponsored by BCS, and seen exclusively by Data Economy, the survey provides analysis and market views focussed on stakeholders within the European data centre industry.

Those taking part include owners, operators, developers, investors, consultants, design and build specialists and end corporate users within the data centre space.

James Hart, CEO of BCS, said: “This research has been conducted against the backdrop of digital disruption. Digital disruption has taken place but it is far from done yet. We can see the proliferation of business eco-systems, the leveraging of AI/machine learning and the power of the cloud.

“With a new generation of users and workers emerging that are more tech savvy, more user friendly and increasingly affordable tools, we are now in a position where every company now has the opportunity to be a technology company.

“Our industry’s opportunity is to be the engine room to enable the digital shockwaves that are powering this revolution narrowing the gap between technology and infrastructure provision.”

Data Economy exclusively lists the main five findings in the annual report.


Data centre ownership still in the hands of businesses

Although outsourcing in the data centre space seems to be getting traction, the report findings suggest that companies are still very much in control of their IT environments.

Around two-in-three colocation operators and IT integrators/cloud provider respondents recorded that 80% or more of their data centre portfolio was internally managed.

In contrast, corporate occupiers report that they outsource the management of much of their data centre footprint, with three-quarters of them outsourcing at least 70% of their footprints.

The report highlights that there may be additional economic reasons for this, but practically the ability to right-size deployments, mobilise IT workloads into production  quickly and lower the cost of investment are significant drivers for these users.


Only 1 in 3 use 80% or more of their in-house data centre space

The balance between in-house data centre space usage and usage of a third-party provider is being kept with companies having a large majority (80% or more) of their data located outside their own facilities.

Just under 80% of respondents said they are using 80% or more of their third-party data centre space. This, according to the report, reflects the ability to successfully match IT requirements to data centre liabilities out-of-house.

In contrast, only nearly 35% are using the same amount of space in their own data centre.

For corporate occupiers who maintain their own facilities, the average utilisation rate tends to be lower than in externally managed facilities – 40% as opposed to nearly  68% – reflecting the increased pressure to sweat value for  money from externally sourced facilities.

“Amongst colocation operators, carriers, integrators and cloud providers, the average utilisation rate of their own facilities remained relatively high at around 75%, revealing their on-going drive to facilitate quick expansion  space for clients whilst maintaining high utilisation ratios,” the report shows.

Responses also show that these respondents also maintain a higher utilisation rate in third-party space driven “undoubtedly by the need to maximise efficiencies of space and reduce void periods”.


Expansion will be felt in-house and out-of-house

Expansion of data centre space is critical to business scalability and respondents showed a high level of desire to expand their footprints, both in-house and in third-party facilities.

Nearly 60% of those surveyed said they expect to increase their in-house portfolios during the remainder of this year, and around 38% will undertake a similar programme during the first half of 2018.

“The expected degree of expansion of in-house floorspace during 2017 is slightly above the long-term average, however, it does represent a marked decrease on the recorded levels in 2015, when around 70% expected to expand their technical floorspace,” it reads in the report.

As for expansion out-of-house, the 14th Data Centre Survey recorded the highest level of respondents who stated that they expected to expand their third-party space over the coming 12-18 months, standing at 35%.

Integrators, carriers, colocation and cloud providers remain the most optimistic group looking to expand their in-house portfolio over the next 12 months, with around three-quarters indicating that this route is their preferred build-out strategy.

They are expected to be more circumspect in terms of expansion using third-party facilities, although at a recorded level of 25%.

According to the report, this suggests they will pursue this course, which is above the 20% noted in a similar period of 2015.

Corporates are the most cautious, with only 11% predicted to raise their in-house portfolio over  the next 12 months, and one-third  expecting to downsize.

The drivers behind the growth and downsize of data centre space in and out-of-house are mainly corporate expansion or contraction, changes in available IT budgets, availability of the appropriate data centre product, changing power demands and/or costs, changes in data sovereignty structures, and changes to fiscal structures.


Developers and investors break expansion record

Nearly 90% of developers and investors taking part in the survey said they have increased the size of their data centre portfolio over the past six months. This represents the highest ever percentage iXConsulting has registered since the first report in 2009.

“This is understandable as most market commentators report some of the largest levels of take-up of data centre space last year, aligned with robust growth in IT budgets  during the previous few years and the proliferation of cloud-based services,” the company said.

“These will all have underpinned the drive of demand that is needed by developers and investors to push the button on new facilities, or carry out expansion plans within existing ones.”

Expansion by developers and investors is primarily driven by identified demand with over one-third of respondents citing it as a major factor for the remainder of this year and into H1 2018.

“This is a long way from the ‘build it and they will come’ philosophy that dogged the industry at the start of the noughties [the period between 2000 and 2009],” the report authors highlighted.

In order to choose a site’s location, developers look into identifying demand, changes in the local fiscal structure, diversification of portfolio, changes in data sovereignty structure and lack of supply.

When having to rank different factors that weigh in when having to choose a new data centre, developers and investors placed power availability and cost at the top.

“Power remains important, cited by around half of our respondents as the highest ranked factor in their data centre decision process, and by nearly three-quarters as the top two ranking positions.

“Coming a close second is location, just missing out on the top spot as it appears less often in the number one position.”

Amongst the other factors, land price and political/social stability appear to be the least important factors affecting respondents choice, with access to fibre causing slightly more concern.

The total build-out cost and availability of specialist data centre construction skills were ranked in the middle of the table.


Brexit plays a role in medium to long term planning

Overall, the data centre market is also responsive to events outside the data halls. The report has found that following the UK’s decision to leave the EU, the industry is confident the departure will not negatively impact the data centre sector, with more people now believing demand will remain stable and admitting that Brexit is likely to see increased demand for both new data centres in the UK as well as other European locations.

However, corporate respondents were less sure of the demand levels, with only one-third believing that demand would increase, while the vast majority of those being questioned remained neutral to the topic.

James Hart, CEO of BCS, said: “At the forefront of medium to long term planning, there is no doubt that the UK’s secession from the European Union and what form that will take is a major influence.

“Over two thirds of respondents to this survey believed that this would fuel an increased demand for technical space citing issues  such as data sovereignty, fiscal structures, and economic incentives as key drivers. However, the  question is what capability and capacity is available to deliver this increase in demand?

“Over 55% of respondents cited a real concern that a pinch point had developed in the contracting industry whilst this rose to nearly 66% for this circumstance within the professional teams.”

The survey notes the UK will have to “embrace the same data protection standards as the EU’s new General Data Protection Regulation (GDPR)” in order to allow the flow of data across European borders.

On that topic of data, three quarters of respondents agreed that consideration of Data Sovereignty of Regulation is more likely when assessing the location of a new data centre in Europe.

70% agreed that they are more likely to consider fiscal structures when assessing the location of a new European data centre. In both instances, a very small proportion of respondents– around 5% -disagreed.


Note: All graphics in this piece were provided by iXConsulting.