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30.01.2019

Why Europe’s data centre market is getting in a FLAP

In the quest for self-improvement, many New Year’s resolutions include improving diet, exercise and general health and well-being. If the European data centre market were to be personified, what might its resolutions be?

With booming demand outstripping supply, with multiple knock-on effects, one might be to streamline and improve the supply chain.

Flapping hell

Data from real estate specialist CBRE has shown the European data centre market has been growing exponentially for several years.

Rewind to 2016 and headline data from real estate group CBRE showed it was a record year for Europe’s colocation market.

Move to 2017 and data from the same group again shows record growth. And for last year, guess what? ‘Record levels’ of growth hitting the European market, with four major markets adding 95MW of capacity in the first half of the year alone.

Such levels of market growth are inevitably accompanied by demand for construction and technology services. To put this into perspective, CBRE estimates that the 177MW of capacity delivered in 2018 required over $1.3 billion of CapEX (capital expenditure) to fit-out and deliver.

That’s a serious need for a well-oiled machine with multiple cogs needing to fit and work together. Yet this doesn’t appear to be the case.

Future-tech Europe's Data Centre Market

Keeping up with demand

Global professional services company Turner & Townsend’s 2018 data centre build cost index (DCCI) showed that London is the most expensive of the FLAP markets (Frankfurt, London, Amsterdam and Paris), with a construction price of US$8.6/W.

In comparison Warsaw featured as the cheapest market in EMEA at US$5.9/W – perhaps surprisingly cheaper than either Nairobi at US$6.4/W or Johannesburg at US$6.1/W, again due to freight and import duties.

Worryingly, the accompanying market research to Turner & Townsend’s DCCI revealed that only 12% of respondents believe that the data centre construction industry was able to meet industry demand last year. In short: the industry is aware that it will struggle to match the enormous growth being experienced.

Turner & Townsend identifies four major threats and reasons for this:

– Supply chain capacity (contractors and equipment vendors)

– Skills shortages (professionals and trade-contractors)

– Power and land availability, planning issues

Market conditions driving cost inflation/escalation.

STEM skills shortages

Dan Ayley, Director, Hi-Tech & Manufacturing at Turner & Townsend, believes the first two reasons are most prominent.

“It’s not just design engineers: there is a shortage of project managers, cost managers, general contractors – it’s all the way up and down the food chain at every level,” he says.

“What’s happening is we found it’s driving inflation. In an overheated market, with competition for talent, one answer is to pay people more – but it’s not sustainable and doesn’t solve the wider problem.”

The challenges of STEM (Science, Technology, Engineering and Maths) skills shortages are well documented, estimated to cost UK businesses £1.5 billion per year.

Adding to this are time constraints and the reliance upon a relatively small established supply chain, according to Ayley.

“Everyone wants a data centre built yesterday. There’s never a project  that doesn’t have an aggressive build schedule. And when we look to the growth across the wider EMEA region, we are still largely reliant upon a small number of established contractors from the UK or Ireland..”

Future-tech Europe's Data Centre Market

Market consolidation

Recent data from Synergy Research Group shows that the number of large data centres operated by hyperscale providers rose by 11% in 2018 to reach 430 by year end.

Hyperscale growth continues unabated, with company revenues growing by an average 24% per year and their capex growing by over 40% – much of which is going into building and equipping data centres, the group said.

As well as the 430 current hyperscale data centres, Synergy estimates a further 132 that are at various stages of planning or building, with many serving the needs of Amazon, Google, Microsoft and Facebook.

“There is no end in sight to the data centre building boom,” said John Dinsdale, chief analyst and research director at Synergy Research Group.

Such market consolidation is exposing a supply chain immaturity not able to cope with such demand, according to Mark Collins, the sales director at UK engineering company Excool.

“What we’ve seen in that short space of time is a massive consolidation of the market, which has eradicated a lot of smaller operators. Because of the massive demand that’s there, the supply chain just isn’t mature enough to cope with it – it’s happened so quickly.”

Future Tech Industry Demand

Dogfights

Collins’ UK company Excool has installations in several European countries and even locations as far flung as Chile.

He adds: “We also have this mentality where every phase of every project has to be tendered, everything’s got to be fought over. It doesn’t give the supply chain forward visibility, an understanding of where the next job is coming from, and to be able to invest with any certainty in increasing production capability.

“What we tend to find is that a project gets tendered six months ahead of time but is only awarded 16 weeks before the kit is due on site and everybody is then in a fight to try to do it. We and our supply chain are then under pressure to meet the delivery dates.”

Clearly, a booming market is a good problem to have. It certainly beats a depressed one. Yet scaling up the supply to meet a booming demand is not a straightforward task, with multiple components playing into this.

‘New Year resolutioners’ – those that take up memberships in January but cancel by February are a common sight in gyms and health clubs across the country. While the supply chain won’t collapse in two months, it’s clear long-term efforts are needed by multiple stakeholders to ensure the industry can scale up to meet demand.

To find out more about data centre design solutions, contact the UK’s leading data centre specialists – Future-tech, at info@future-tech.co.uk.