Secondary markets witnessing a boom in development
The industry has responded to the COVID-19 pandemic by launching development closer to users and investing large sums of capital in new platforms
New research from Cushman & Wakefield has identified Berlin, Reykjavik, Oslo, Warsaw, Zurich, Milan, Vienna, Madrid and Prague as emerging hotspots for data centre development in Europe.
The European data centre market has long been dominated by the ‘FLAP-D’ markets of Frankfurt, London, Amsterdam, Paris and Dublin, cities with their own deep business and financial sectors to serve. While these markets are still critical to the data centre ecosystem as entry points - and with over 500 MW of construction underway among them - interest in the FLAP-D markets is now competing with physical limitations including a lack of energy to power the centres, limited stock and a need to be closer to regional users.
These constraints have seen a host of new locations joining the data centre landscape as operators have responded to client demand across the region. The COVID-19 pandemic has only propelled this trend further as millions continue to work from home, seeing demand and opportunity deepen in secondary markets.
Stephen Kirby, Partner, Data Centre Advisory at Cushman & Wakefield, said: “Increasing land values, limited power availability, data centre construction moratoriums within some FLAP-D markets and fibre connection latency demands has resulted in hyperscalers moving data centre workloads away from established markets and closer to their customers. This move has unlocked activity in emerging data centre locations, cities that would be classed as Core in any other asset type.
“A wide array of pension funds, sovereign wealth, infrastructure funds and private equity firms see the investment potential in data centres and are circling the continent looking for an initial foothold in the European market.”
Kevin Imboden, Research Director, Data Centre Advisory Group at Cushman & Wakefield, added: “The huge energy requirements of data centre sites are driving significant investment and development in markets that can leverage reliable, low cost green sources of energy such as hydropower, therefore markets such as the Nordics, which also benefits from close proximity to successful business hubs, are gathering considerable interest.”
The cities listed in the European Secondary Markets: The Growth Story for the New Decade report are the vanguard of these emerging markets, each with their own local ecosystem of cloud services providers, developers, investors, and occupiers.
Of the cities studied, Reykjavik (212 MW), Berlin (199 MW), Warsaw (128 MW), Oslo (125 MW) and Zurich (117 MW) and are currently on track to becoming the five largest secondary data centre markets in the next five to ten years. The greatest growth from current capacity is led by Berlin (+342%), followed by Reykjavik (+308%), Olso (+150%), Warsaw (+100%), and Zurich (+89%).
With Frankfurt as Germany’s financial and data centre hub, the question has long existed as to which city would emerge as the country’s secondary market. Recent developments increasingly indicate that Berlin is emerging as the most attractive city, with major campuses planned by both e-shelter and new entrant Vantage. At full buildout the two projects would take Berlin to a near-200 MW market, adding to a local scene already populated by e-shelter’s initial location, GTT, Colt, and CarrierColo among a handful of local operators. Microsoft Azure operates its Germany North region locally, though other major cloud services have yet to enter.
A popular alternative for those looking for closer deployments to the Americas while remaining in Europe, Reykjavik has served as a destination for high-performance computer needs and cryptocurrency mining alike thanks to the low-cost geothermal and hydroelectric power on offer. Recently-acquired Etix has one campus locally, while Advania, Reykjavik DC, and Verne Global all have their own options, with each offering expansion capability across several phases. An array of tax incentives and an amenable local utility are also on offer.
Warsaw has received considerable interest of late from hyperscalers, developers, and across the greater ecosystem as each determines how best to service Central and Eastern Europe. Warsaw has attracted considerable investment from international companies, headlined by Microsoft’s recent decision to invest over $1 billion in local infrastructure, training, and cloud services for enterprises and government. Of note is American hyperscale operator Vantage, which plans on entering the market in 2021 with the first phase of a campus that will span 64 MW at full build-out - double the current market size.
As data centre operators and their clients aim at becoming greener, the low-cost hydropower on offer throughout Norway and in Oslo have served to make the area more attractive for large deployments. The Norwegian government has assisted with this development, rolling out a package of energy and property tax incentives to attract hyperscalers in both Oslo and regionally. The Oslo co-location market is dominated by local players, including DigiPlex (with three facilities in the area), local internet exchange OS-IX (backed by Bulk Infrastructure), and Green Mountain with their major upcoming campus that will offer 75 MW of capacity at full buildout. Connectivity to the rest of Europe will become even quicker late in 2020, with the new 170-kilometre Skagenfibre cable coming online to link Hirtshals in Denmark to Larvik and Oslo in Norway.
A major financial centre and the largest city in Switzerland, Zurich has a thriving data centre market with a mix of global operators (Equinix, Colt), pan-European stalwarts (Interxion, NTT’s e-shelter) and local firms (three locations for Green Datacenter among others). Google Cloud and Microsoft Azure both have local regions, with Equinix recently launching an Azure ExpressRoute for faster access in their Zurich facilities. Secondary cloud software firms have also found Zurich attractive, with the recent entry of Oracle Cloud in support of both their local Smart Innovation Lab and the continued IT development plans of regional clients. Local development in the near-term includes the impending arrival of American hyperscale developer Vantage, with plans for the 8 MW first phase of an eventual 40 MW campus slated for 2021.