Frankfurt Multi-Tenant Datacenter and Hosting Market

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1 MARKET FORECAST Frankfurt Multi-Tenant Datacenter and Hosting Market DEC 2015 Rory Duncan, Research Director, European Services Penny Jones, Senior Research Analyst, European Services Second only to London in the size of its multi-tenant datacenter and hosting market, Frankfurt is a growing metro with the largest potential for colocation, managed hosting and cloud services in EMEA. Centrally placed in continental Europe, Frankfurt offers convenient facility buildout, increasing network investment and proximity to regional markets in the south and east of Europe. At the same time, Germany s data protection regulations create additional operational overhead for many hosting firms and can create barriers to entry for international companies RESEARCH, LLC

2 ABOUT 451 RESEARCH 451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to over 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. NEW YORK 20 West 37th Street 3rd Floor New York, NY P F SAN FRANCISCO 140 Geary Street 9th Floor San Francisco, CA P F LONDON Gower Street London, UK WC1E 6HH P +44 (0) F +44 (0) BOSTON 1 Liberty Square, 5th Floor Boston, MA P F ABOUT THE AUTHOR RORY DUNCAN RESEARCH DIRECTOR, EUROPEAN SERVICES As the Research Director for 451 Research s European Services channel, Rory provides insights into the European multi-tenant data centre and colocation services markets, European web, application, and managed hosting services, European cloud (IaaS, PaaS & SaaS) services, internet exchanges and content delivery networks. PENNY JONES SENIOR RESEARCH ANALYST, EUROPEAN SERVICES As Senior Analyst for 451 Research s European Services channel, Penny provides insight into the European multi-tenant datacenter and colocation markets; European Web, application and managed hosting markets; European cloud (IaaS, PaaS & SaaS) markets; and Internet exchanges and content delivery network (CDN) markets. II

3 Key Findings Germany has weathered the economic crisis in EMEA better than any other European country, and those infrastructure providers that have invested in network connectivity and datacenter space stand to gain from the return to growth over the next months. Consolidation continues to shape 451 Research s European Services: Frankfurt Market MapTM particularly in the hosting segment, with a number of Europe s top Web and application providers acquiring regional scale within Germany and elsewhere. An estimated 158,986 square feet of operational space was brought online in Frankfurt in 2015, contributing to a total supply of 2.14 million square feet. About 78% of this is utilized. Given announced pipelines and expected demand, we expect to see continued market growth averaging 8-9% over the coming years, with 12% of supply expected to come online next year. Power pricing in Germany is the highest in Europe. Germany is upgrading its energy infrastructure, moving from nuclear to renewables, and taxes and levies have been imposed for more than a decade ahead to help it fund the revitalization of its energy infrastructure. Gaining access to energy can also be challenging when requesting supply above 30MW. This is driving many providers to focus on energy efficiency. III

4 Executive Summary INTRODUCTION Of the four key European metro markets London, Frankfurt, Paris and Amsterdam for hosting and multi-tenant datacenter (MTDC) (retail and wholesale colocation) services, Frankfurt is the second largest after London in terms of opportunity and geographic footprint. It is also gaining ground rapidly: Our London report showed that, buoyed by investment from infrastructure providers, Frankfurt has potentially more physical space to develop, with lower-latency connections to emerging markets such as Eastern and Middle Eastern Europe. At the same time, inner-city space constraints in Frankfurt are driving up costs, particularly due to the length of time it can take to receive building approvals between five and six months for the right environmental approvals for facilities over 50MW and 3-12 months for city building approvals. In this market, preapprovals for building last only between two and three years. Frankfurt is also home to the world s largest interconnection platform the German Internet Exchange (DE-CIX). DE-CIX runs Ethernet-based interconnection services for ISPs, CDNs and others that have a requirement to exchange large amounts of traffic. Its Apollon platform is hosted by Equinix and is delivered out of a number of Frankfurt datacenters operated by e-shelter, ITENOS, Interxion, KPN, Level 3 Communications, NewTelco, TelecityGroup and KDDI Telehouse. The exchange has a growing national and global presence with Hamburg and Munich enabled sites, New York, and the UAE-IX platform in the Middle East. It is also expanding its presence through locations in Dallas in the US, Palermo in Sicily (Italy), Istanbul in Turkey and Marseille in France. DE-CIX ensures plenty of Internet traffic flows through Frankfurt from locations including Stockholm, Eastern Europe and Italy, among others. And increasing demand is leading to rollouts of last-mile bandwidth in the city with many telecommunications and colocation providers investing in connectivity. Two to three years ago, last-mile fiber almost cost as much as backbone connections in Frankfurt, but costs are going down as providers pull in fiber to meet higher-density cloud demands. Equinix, for example, has laid its own fiber ducts connecting its two campuses, reducing pricing for end users. This is driving growth in direct customer-to-customer cross-connects, in particular for digital media, cloud and social media companies that run their own CDNs and use Internet exchanges, but also provide independent connectivity options. In recent years, Frankfurt has focused more on its position in the digital world, with a new lobby group called Digital Hub FrankfurtRheinMain forming to help drive new government practices that are more favorable to the digital economy and Frankfurt s cloud, hosting and datacenter industry. It has been focused on, for example, reducing the time it takes to receive approval to run last mile fiber in the city (a process that can be affected by the density of utility infrastructure running along and under Frankfurt s streets). It has also been looking at ways to drive private bandwidth initiatives. On top of connectivity, the group has a focus on energy efficiency and driving the overall development of digital infrastructure. IV

5 FRANKFURT MULTI-TENANT DATACENTER AND HOSTING MARKET EXECUTIVE OVERVIEW METHODOLOGY The data in this report was assembled in part through the use of 451 Research s Datacenter KnowledgeBase, which tracks hundreds of companies in the space, including product mix and regional market shares. Our methodology includes tours of many of the datacenters in the markets, surveys of datacenter providers, phone briefings and data collection from competitors. 451 Research also interviews real estate professionals as part of our research. This report was written by: Rory Duncan, Research Director, European Services Penny Jones, Senior Research Analyst, European Services 451 Research client input and comments on this report are encouraged. Any questions about the methodology should be addressed to datacenter@451research.com. In cases where metrics are not available from the company, we have used general industry averages and assumptions. The report identifies all datacenter providers discovered by 451 Research in each market, except for those with less than 1,000 square feet of space, and estimates market share for the top three to five providers in each area. Market share is calculated based on operational square footage. For wholesale providers that also lease to retail colocation providers, such space is counted only once in this report as the colocation provider s space since they are selling to the end customer. In other words, this report depicts market share from the viewpoint of the customer that leases space. The only exception is for the wholesale market share graphs, where retail space is not subtracted in order to give a clearer sense of the true wholesale market share. This report uses the most up-to-date information received from datacenter providers to estimate market sizes, supply, demand and utilization figures. Figures in this report represent yearend numbers and can differ from previous editions of our reports due to more disclosures received from more providers. The maps in this report may not reflect all datacenter facilities in a particular market because not all datacenter providers disclosed addresses for all facilities, but do include the majority of facilities. For this report, sizing of datacenter markets includes only facilities located within roughly a 50-mile radius from each city center. Datacenter supply and demand is often referred to in the industry in terms of power available (typically in megawatts, MW), and we expect to convert our graphs to MW eventually. However, not all datacenter providers have given us power metrics and, even when obtained, such metrics can be difficult to confirm (particularly for utilization). Thus, for the time being, we continue to show supply and demand in terms of operational square footage. V

6 Table of Contents 1. THE FRANKFURT MTDC AND HOSTING MARKET 1 MULTI-TENANT DATACENTERS FRANKFURT MTDC MARKET, Q Figure 1: Datacenter Hubs in and Around Frankfurt MANAGED HOSTING & CLOUD WEB & APPLICATION HOSTING COMPETITIVE OVERVIEW 4 MARKET MAP Figure 2: 451 Research European Services: Frankfurt Market Map MARKET SHARE LEADERS AND EMERGING COMPETITION Figure 3: Top Providers in Frankfurt MTDC Space (by Sq Ft) WHOLESALE DATACENTER SPACE Figure 4: Top Wholesale Providers in Amsterdam MTDC Space (by Sq Ft) Figure 5: Location of Notable Wholesale MTDC Providers for the Frankfurt Market RETAIL MULTI-TENANT COLOCATION Figure 6: Top Retail Providers in Frankfurt MTDC Space (by Sq Ft) Figure 7: Location of Notable Retail Colocation Providers for the Frankfurt Market HOSTING MTDCS 14 SUPPLY & DEMAND Figure 8: MTDC Total Supply, Frankfurt Figure 9: MTDC Supply/Demand and Utilization, Frankfurt UTILIZATION PIPELINE VI

7 FRANKFURT MULTI-TENANT DATACENTER AND HOSTING MARKET EXECUTIVE OVERVIEW 4. HOSTING 17 SUPPLY DEMAND Figure 10: Germany Hosting Market Size and Growth DISRUPTIVE TRENDS 19 GERMANY: STILL THE ENGINE OF GROWTH IN EUROPE? M&A AND SERVICE CONSOLIDATION REVISED GERMAN DATA PROTECTION LAWS CLOUD AND IAAS ADOPTION IN GERMANY CLOUD DEMAND WILL OVERCOME PRICING CONCERNS IMPLICATIONS AND OUTLOOK 22 IMPLICATIONS OUTLOOK TERMINOLOGY TAXONOMY 24 MTDCS RETAIL COLOCATION WHOLESALE DATACENTER INTERCONNECTION MANAGED HOSTING INDEX OF COMPANIES 26 VII