Research article

Next data centre milestones

In many ways, 2020 marks a turning point for the data centre industry, raising many new opportunities but also challenges for operators, developers and investors

The Covid-19 pandemic has highlighted how vital data centres are. Following lockdown restrictions and social distancing measures, the use of connected devices skyrocketed. Whilst existing infrastructure held up surprisingly well, the number of outages and latency increased, attracting some governments’ attention.

Consequently, the rollout of 5G and fibre networks is likely to accelerate in Europe. The deployment of 5G technology is calling for some restructuring of the data centre architecture, notably at the edge of networks. This will increase the need for data centres in tier 2 and tier 3 cities.

New developments which have been delayed this year due to lockdown restrictions may eventually be facilitated by local authorities in the future, thanks to accelerating building permit process, tax incentives or reduction in energy costs.

With homeworking, eLearning and telemedicine adoption unlikely to cease, at least totally, the demand for data storage, which was already expected to increase massively before the pandemic, will now surely balloon. This will benefit largely to cloud and colocation service providers and exacerbate consolidation and M&A strategies.

Covid-19 put data centres to the fore. The whole industry will have to adapt to an even faster-growing online world than it was anticipated before the pandemic. This will generate many opportunities for operators, developers, and eventually, investors.

Savills European Research

Large data consumption pools will continue to attract developers and operators’ attention. We expect further development in the UK, Germany, France and the Netherlands and some expansion in other significant markets such as Spain, Italy and Poland. Meanwhile, the Nordics countries will stay high in the panel of the top European destinations for hyperscale data centres.

Solid fundamentals will continue to attract an increasing range of investors. To circumvent the lack of transparency and the high level of specialism required in the market, partnerships, JV and entity acquisitions will be increasingly used by private investors to enter the data centre market. At the same time, we expect consolidation strategies amongst the major market players to lead towards more sale and leaseback opportunities. As the sector will grow as an asset class, we anticipate prime yields to harden in the next 1–2 years.

Although evolving fast towards green energy, much more will be needed to face the anticipated surge of digital needs in the next 5–10 years. As the EU Commission is urging to green the industry and with ESG credentials growing high in the investors' agenda, a more pronounced focus will be given to sustainable data centre facilities.

Paradoxically, technology poses both opportunities and threats to the industry. Fast-evolving technologies enable but also oblige the sector to quickly adapt – at an important investment cost. Quantum computing which remains based on an experimental approach, for now, would bring a revolution in the data centre industry.

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