International #DataCenter Real Estate Overview

International Data Center Real Estate Overview

Jeff Clark May 16, 2012

Although the U.S. still remains in some sense the hub of the data center market, other regions around the world are exhibiting their own dynamics, particularly in Asia and Europe. Demand for data center services has yet to plateau, so companies are continually needing to expand their IT capabilities, whether through new data center construction or expansion or through outsourcing to the cloud (meaning another company somewhere must have or add data center capacity). Thus, demand for data center real estate is correspondingly strong—but, naturally, it varies around the globe depending on a variety of factors. The following are some key international areas in the data center real estate market.

Europe

Given its current fiscal straits, Europe exemplifies the present overall strength of the data center market. The continent is currently struggling to resolve its crushing debt load and to determine whether it will continue as a consolidated entity (the EU) or as separate states. A breakup of the EU may well be in the offing, as CNBC reports (“Stocks Post Loss on Greece, S&P at 3-Month Low”): “‘I think people need to prepare for the eventual removal of Greece from the EU and investors are getting ahead of that before they’re forced to,’ said Matthew McCormick, vice president and portfolio manager at Bahl & Gaynor Investment Counsel.” Greece may be the first—but not last—nation to leave or be booted from the union.

But despite these economic and political problems, the data center industry is still seeing growth in this region. In the colocation sector, service provider Interxion reported good news for the first quarter of this year, according to DatacenterDynamics (“Interxion reports strong Q1 results despite Europe’s economy”): Interxion’s CEO, David Ruberg, stated, “Recurring revenue increased by more than 4% over the quarter ended December 31, 2011, and strong bookings in the quarter reflect a continued healthy market for our services, despite sustained economic weakness in Europe.”

Furthermore, even though Europe is in the midst of a financial crisis, possibly spilling over to a political one, portions of it remain relatively low-risk locations for new data centers, according to Cushman & Wakefield and hurleypalmerflatt. The Data Centre Risk Index 2012 ranks the U.K. and Germany as second and third, respectively, for lowest-risk regions to build data centers (behind the U.S.). This report examines risks such as political instability, energy costs, potential for natural disasters and other factors that could endanger a data center operation.

Given the increasing reliance of western economies on IT services provided by data centers, the real estate market will likely withstand minor economic or even political reorganization in Europe. Of course, should the economic problems result in a more serious situation, all bets are off.

Nordic Region

Within Europe, the Nordic countries are a growing market all their own. Offering a cool climate (great for free cooling to reduce energy consumption) and (in some areas) abundant renewable energy, these nations are an increasingly attractive (and, concomitantly, less risky) option for companies looking to build new facilities. On the 2012 Data Centre Risk Index, Iceland ranked an impressive number four (even despite its recent volcanic activity that shut down many European airports); Sweden ranked eighth, followed by Finland at nine and Norway at twelve.

Nevertheless, even though the region has seen expansion of the data center market this year, not everything works in its favor: according to DatacenterDynamics (“Nordics make strong entrance in data center risk index”), “Norway…ranked as the most politically stable country and also measured a high availability of natural resources and renewable energy sources but its high cost of labour and relatively low connectivity pushed it down on the list.” Iceland was cited for political instability and a lack of bandwidth capacity as working against it. Overall, however, the Nordic countries are the rising star of the European region.

Asia

Asia represents the area of greatest expansion in the data center market, as the Data Center Journal reported (“Fastest-Growing Data Center Market in 2012”). In particular, Hong Kong, Shanghai and Singapore demonstrate the strongest growth, but other areas are also growing. Asian nations do not yet match western nations—particularly the U.S.—in overall development, but their large populations (particularly in China and India) and growing demand for IT services are driving demand for data center space. On Cushman & Wakefield and hurleypalmerflatt’s Data Centre Risk Index for 2012, Hong Kong placed highest among Asian regions, ranking seventh. South Korea ranked 13, Thailand 15 and Singapore 17. China and India, despite their growth potential, ranked near the bottom of the list: 26^th place for China and 29^th for India out of 30 evaluated nations.

Despite the risks, China in particular is seeing growth, partly as companies from other nations (like major corporations in the U.S., including IBM and Google) build facilities in hopes of tapping the emerging markets in the region.

South America

South America is another region with mixed conditions, like Asia. Despite its own significant growth, the region poses many risks to companies building data centers. Brazil, the only South American nation represented in the Data Centre Risk Index scored at the bottom of the heap. DatacenterDynamics (“Report: Brazil is riskiest data center location”) notes that although “the report’s authors based their judgment on more than a dozen parameters, high energy cost and difficulty of doing business stood out as key risk factors in operating data centers in Brazil.” Other risk factors, such as political instability and high corporate taxes, also weighed the nation to the bottom of the rankings. Nevertheless, Brazil will likely lead in growth in this region, according to the Cushman & Wakefield and hurleypalmerflatt report. In addition, Mexico will also see significant growth (the nation only ranked a few slots above Brazil according to risk). Although Mexico is technically not geographically a part of South America, it may be best lumped with that region.

Middle East and Africa

The only country outside the above-mentioned regions that ranks in the Data Centre Risk Index is the Middle Eastern nation of Qatar, which ranked a surprising sixth place, just behind Canada. Needless to say, few nations in this region represent prime data center real estate, owing to political instability, ongoing wars and other factors. Populations in these regions are demanding IT services, and opportunities are available, but pending some relief from strife (particularly in the Middle East, but also in some African nations), growth will be restrained.

Data Center Market Conclusions

Growth in the data center real estate market is still strong in North America, as businesses and consumers continue to demand more and more services. Europe, despite is economic difficulties (and the U.S. isn’t far behind), is nevertheless seeing growth as well. Asia, concomitant with its emerging markets, is the growth leader in the data center sector (meaning certain portions of it—it is a huge region). But these conditions tend to indicate that the data center market overall is simply in its growth stage. Eventually, growth will level out as rising demand meets the ceiling of resource (particularly energy) availability.

Photo courtesy of Martyn Wright