Multi-Tenant Datacenter and Hosting Market. Rory Duncan, Research Director, European Services Penny Jones, Senior Research Analyst, European Services

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1 EXECUTIVE OVERVIEW MARKET FORECAST SEP 2016 Frankfurt Multi-Tenant Datacenter and Hosting Market 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 (MTDC) 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 firms 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 SAN FRANCISCO LONDON BOSTON 20 West 37th Street 3rd Floor New York, NY P F Geary Street 9th Floor San Francisco, CA P F Gower Street London, UK WC1E 6HH P +44 (0) F +44 (0) Liberty Square, 5th Floor Boston, MA P F ABOUT THE AUTHORS 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 EXECUTIVE OVERVIEW Key Findings A large trade deficit with the UK may affect the outcome of the forthcoming Brexit an economic challenge that could require additional German government investment in areas such as technology and services (potentially benefiting the MTDC and hosting industry). Frankfurt is rich in connectivity, making it easy and cost-effective for providers to pull fiber into facilities and reach into cloud-connected locations or those that offer access to DE-CIX, the leading German internet exchange. After a relatively slow start, hosting firms are seeing an increasing demand for cloud services, with lack of space a potential issue when it comes to satisfying demand going forward. An estimated 273,776 square feet of operational space will be brought online in Frankfurt in 2016, contributing to a total supply of almost 2.6 million square feet. About 67% of this will be utilized. We expect to see continued record growth in the market in coming years in terms of supply. III

4 EXECUTIVE OVERVIEW Executive Summary INTRODUCTION The Frankfurt multi-tenant datacenter (MTDC) and hosted services market is seeing unprecedented demand, due in part to opportunities from its home market, which slowly but surely is adopting cloud services, and to international carriers and cloud providers that view a local presence as being the only way to ensure compliance with German data regulations and attitudes toward data privacy or that enter the market to gain reach into Eastern Europe and beyond. This demand led to a record 350,000 square feet of colocation space being brought online in 2015 and a frenzy of site selection that will see unprecedented build activity across the market in years to come not only for colocation providers but also for a gamut of service providers that are taking space the minute it comes online. It has also led to new alliances and partnerships across the market, from colocation providers leveraging footprint from competitors or local service providers and consultants working with international providers to extend reach but help enterprises migrate to third-party services with a German partner. Equinix partners with local provider Fritz & Macziol, among others, while Microsoft uses T-Systems as a custodian of its German data to overcome concerns regarding data privacy and regulation. Consolidation has also reshaped the Frankfurt market and will continue to do so as valuation multiples for hosting and colocation companies across Europe rise. Equinix acquired TelecityGroup, taking on two sites then divesting one of them to Digital Realty, giving the wholesale provider its first footprint in the market (albeit a retail colocation offering). We also saw MainCubes a provider that is constructing a large datacenter in the city sell with a leaseback option to Asian real estate investment trust Keppel DC REIT. This followed NTT Communication s acquisition of e-shelter in In 2016 takeovers are also on the table for CenturyLink and Global Switch, and we know interest has been shown in smaller local providers with established datacenter assets. The market retains its position as one of the most connected, not only as home to the German Internet Exchange (DE-CIX) but also due to its connectivity into Istanbul, the rest of Europe, Eastern Europe, the Nordics and soon Marseille that will extend reach to Northern Africa. And the cost of last-mile fiber has meant providers now find it easy to access the city s key connectivity hubs. 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. IV

5 FRANKFURT MULTI-TENANT DATACENTER AND HOSTING MARKET EXECUTIVE OVERVIEW 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 EXECUTIVE OVERVIEW Table of Contents 1. FRANKFURT MTDC AND HOSTING MARKET 1 MULTI-TENANT DATACENTERS Frankfurt MTDC MARKET, Q Figure 1: Datacenter Hubs In and Around Frankfurt MANAGED HOSTING & CLOUD HOSTING 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 Frankfurt MTDC Space (by Sq Ft) Figure 5: Location of Notable Wholesale MTDC Providers for the Frankfurt Market e-shelter Global Switch Zenium Technology Partners 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 Equinix ITENOS KDDI Telehouse Interxion Level 3 Communications Digital Realty HOSTING T-Systems (Deutsche Telekom) Strato (Deutsche Telekom) VI

7 FRANKFURT MULTI-TENANT DATACENTER AND HOSTING MARKET EXECUTIVE OVERVIEW United Internet Group Host Europe Group PlusServer (HEG) Hetzner Online INTERNET AG LeaseWeb Germany BT Global Services Vodafone Global Enterprise MTDCS 16 SUPPLY & DEMAND Figure 8: MTDC Total Supply, Frankfurt UTILIZATION Figure 9: MTDC Supply/Demand/Utilization Frankfurt PIPELINE HOSTING 19 SUPPLY DEMAND Figure 10: Frankfurt Hosting Market Size and Growth DISRUPTIVE TRENDS 21 GERMANY & BREXIT: HOW WILL IT AFFECT THE COUNTRY? CONSOLIDATION AND EXPANSION GERMANY AND THE GDPR GERMANY: THE GATEWAY TO THE EAST CLOUD, IAAS DEMAND AND SPACE CONSTRAINTS VII

8 FRANKFURT MULTI-TENANT DATACENTER AND HOSTING MARKET EXECUTIVE OVERVIEW 6. IMPLICATIONS AND OUTLOOK 24 IMPLICATIONS OUTLOOK TERMINOLOGY TAXONOMY 26 MULTI-TENANT DATACENTERS RETAIL COLOCATION WHOLESALE DATACENTER INTERCONNECTION MANAGED HOSTING INDEX OF COMPANIES 28 VIII