ViewPoint European Data Centres Q2 2012

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1 CBRE ViewPoint European Data Centres 212 IN THIS ISSUE Executive Overview Colocation Supply & Take-up & Demand Forecast Market Focus London Market Focus Paris Market Focus Frankfurt Market Focus Amsterdam Market Focus Madrid Data Centre Topics Definitions EXECUTIVE OVERVIEW As we move into the second half of 212 the first 6 months of the year have provided some notable changes to the European data centre landscape. The biggest recent story has been the 715million purchase of the Sentrum portfolio by Digital Realty. This transaction adds to a growing list of recent strategic acquisitions made by data centre operators and provides indication of the leading names strengthening their position in key markets. As expected market activity in Quarter 2 has been slower than in the first quarter of the year which was boosted by several large Wholesale transactions. Total European Tier 1 take up in the second quarter was 7,345sq.m of data centre space or 9.3MW of IT power load. Although this total is noticeably less than Quarter 1 it compares favourably to the same quarter in 211. It also provides clear evidence that demand for data centre services is continuing to weather global economic turmoil well and in many cases better than other asset classes of real estate. At the half way mark we can now see that total take up of colocation space for the year is 29.3% ahead of the same period in 211. At this level, the industry is on track to meet our forecast for this year of close to or above the 4,135sq.m of 211. The optimism toward future growth in demand can further be evidenced by some notable additions to supply in the past 12 months. New build activity of wholesale space has shown the largest rise with close to 38,sq.m (53MW) of new powered shell being added. The commitment to bring on new space in the current challenging business environment indicates a continued belief in future IT outsourcing demand. The major European retail operators have also been expanding their operational presence having committed to a number of future build projects. The last year has seen new supply of fitted space on par with the longer term average, with close to 18,sq.m (25MW) added since last year. The second half of 212 could see this total escalate with up to 32,sq.m (47MW) scheduled for completion by year end. This looks to be a necessary increase with demand having exceeded the rate of new supply for some time. The most recent demand continues to be focussed on the technology sector which currently accounts for a third of market take up. In particular Cloud service requirements are bringing significant amounts of new business to data centre operators and we see this trend continuing for the year. Corporate demand has also resurfaced in 212 although these requirements continue to be closely linked to the performance of the wider European economy which continues to dictate the level of new IT spending. EUROPEAN TIER 1 COLOCATION MARKET PERFORMANCE AS AT 212 Stock Supply 667, ,5 +1.1% +9.8% Vacancy Rate Comparison on previous year i.e. Quarter CBRE Ltd. Colocation Take-up Total Market Take-up 88, % 22,685 YTD 23,35 YTD +33.1% +2.5% +29.3% +33.1%

2 COLOCATION SUPPLY & AVAILABILITY The forecasted rise in supply scheduled for this year is starting to filter through following 2 years of relative low activity. Total supply of European data centre space has risen by 6% or an additional 23MW of IT power since the turn of the year. The need for new supply has been dictated by a sustained flow of demand which has outpaced the rate of replacement stock. At quarter 2 a significant proportion of new powered shell space is being brought to market by wholesale operators, particularly in London which is the hub of the European wholesale data centre market. The space is held as powered shell with fitting out occurring only once pre-lets are signed. This ensures there is not an oversupply of fitted space in the sector which could affect pricing. Total Wholesale supply has now risen by 38,sq.m or 53MW over the past 12 months with 75% of this in London. The rise in Wholesale space in particular reflects the ongoing trend of outsourcing large amounts of data centre space to third party operators which is currently favoured over a self build alternative. European retail operators are equally finding it necessary to make progress on expansion projects. Retail supply has increased by 18,sq.m or 25MW since Quarter reflecting a consistent rate of increase in line with that seen over the last 3 years. However, this compares with a mid-year average for retail take up during the same period of over 3,sq.m meaning that a point is being reached where the rate of new supply has to be increased. Evidence of new supply is already apparent with last year characterised by the rise in announcements from retail operators. A number of new projects have become operational in the first half of the year and this set to increase later this year and into next. In total the second half of 212 could see up to 32,sq.m (47MW) of additional Retail space, a timely rise and necessary to satisfy new and future demand. Moreover, the uplift in new projects has begun to take effect on the level of available space. At the mid-year point in 212, total availability of data centre space in European Tier 1 locations increased marginally to 14.2%. This is largely as a result of the completion of build projects by retail operators in Amsterdam and Paris, with Amsterdam in particular requiring additional space following the exceptional demand of the past 2 years. Looking ahead, all Tier 1 markets can expect available supply to show an increase as a result of ongoing build projects due for completion within the next months. In markets such as Amsterdam and London where available retail supply in particular had dipped to historic low levels, this will be required to maintain market balance going forward. With demand levels expected to be maintained or show some improvement on 211, further announcements are expected this year in anticipation of future demand growth. SUPPLY & AVAILABILITY MW Supply Supply Source: CBRE Research Page 2

3 MARKET NEWS SUPPLY Since our last analysis published three months ago, the general perception is that the muted outlook for the European economy has not changed greatly. In light of these on-going uncertainties with regard to the wider economic landscape it comes as some comfort to note that the technical real estate market across Europe remains relatively robust. A number of major retail and wholesale colocation providers announced increases in supply over the second quarter of the year. Some notable examples included Savvis announcement of a new 1, m2 Docklands, UK facility as well as a further 1,1 m2 expansion of an existing London data centre as part of its global expansion of some 2, m2 across seven centres. Also in the UK, Telecity reported the opening of its expansion of its Powergate data centre in Acton to provide a further 21 MW of technical space, whilst Zen Internet opened its new purpose built 1,35 m2 data centre in Rochdale. In addition, Gyron announced that it is to open a new 5,5 m2 facility in Slough in early 213. Outside the UK, during the second quarter, Equinix reported a major expansion programme in Switzerland with a new 6,67 m2 data centre in Zurich - its fifth in the city and an additional 72 m2 of new space to be added to one of its Geneva facilities. Also in Switzerland, data centre provider, Green Group, announced the expansion of its new Zurich-West data centre to provide a further 1,1 m2 of technical space. Meanwhile, in France, data centre operator and web hosting company OVH has said it will open a new 1,9 m2 data centre in Gravelines, near Dunkirk, whilst in Spain, Interxion reported the opening of its second data centre in Madrid to provide 1,6 m2 of technical real estate over two phases. The company also opened its seventh data centre on its Frankfurt campus, Germany, to provide 1,5 m2 of new space. Given the wider economic travails, access to sources of funding remains problematic for many schemes, coupled with the reduction in larger requirements needed to anchor, and therefore start, the larger schemes. There are still some encouraging signs however. For example, data centre operator IXcellerate received US$2.6 million from IFC, a member of the World Bank Group to support the construction of a major data facility in Moscow. The total project is expected to be the largest vendor-neutral data centre in Russia when finished. IT Integrators and telecom companies remained active over the quarter, with a number proving particularity important in the data centre industry. One of the most notable examples has seen Colt announce its first modular data centre deployment in the Netherlands to initially provide 2, m2 of data centre space and plans to increase its capacity to 1, m2 over 2 data halls. In addition, the company also announced it is making 1, m2 of modular data centre space available in its Paris facility. Meanwhile, following the recent opening of a new Frankfurt facility, BT has re-opened its newly refurbished data centre in Nieuwegein, Netherlands whilst HP reported the opening of a new data centre in Sofia, Bulgaria. Source: ixconsulting City Lines (thousand m²) RETAIL COLOCATION AVAILABLE STOCK PER TIER 1 MARKET Total (RHS) Amsterdam Frankfurt London Madrid Paris Total Bar (thousand m²) Page 3

4 TAKE-UP & DEMAND Demand for data centre services continues to buck the trend set by the prevailing economic conditions. Encouragingly, the level of new market activity has been maintained from last year. As a consequence, take up of colocation services has been steady with the amount of data centre space and power transacted showing improvement. Total colocation take up in the second quarter was 7,355sq.m or 9.3MW of IT load, an expected fall from the exceptional total recorded in the first quarter, but well ahead of the equivalent period last year. Total colocation take up for the year is now 22,685sq.m or 31MW of IT load, 29% ahead compared with the first 6 months of 211, and given the weakened business confidence that is present, a notable statistic. The technology and telecoms sector continues to be the dominant source of new transactions and enquiries. The sector currently accounts for approximately a third of new data centre business. Internet service providers, carriers and content distribution providers in particular, are consistently presenting new business opportunities for data centre operators. Their need is being fuelled by growth in use of mobile technology and digital media which require an increasing amount of bandwidth and storage capacity to service demand. TOTAL MARKET TAKE-UP BY MARKET SECTOR retail colo wholesale colo self build threat stock TOTAL TAKE-UP IN 212 AS AT QUARTER 2 Paris 2% Amsterdam 12% Additional demand is also coming from renewed corporate activity which has built up over the past months. The drive towards utilising technology to maximise efficiency has been a key motive in bringing new requirements to market. Madrid 2% Frankfurt 18% The current focus is mainly on Cloud implementation and exploring the outsourcing of previously retained IT functions where indications are that this route is receiving greater acceptance. In these austere times an increasing need has been placed upon preserving vital resources for core business. As such, utilisation of third party services is being viewed as the best way to achieve scalable IT solutions and mitigate future obsolescence risk. Our expectations are therefore that total take up of colocation data centre space this year will equal last year or show marginal improvement. The potential for future demand growth of data centre space is clearly evident. However, the unrest in the global economy will undoubtedly continue to prove restrictive on the scale of new demand that will emerge. TAKE-UP European Tier 1 Cities London 48% Colocation Take-up Total Market Take-up 28 72,3 96, ,11 48, ,61 45, ,135 47,15 YTD ,685 23,35 Source: CBRE Research Page 4

5 MARKET NEWS DEMAND Although it would foolish to believe that the European technical real estate market is somehow immune from the pressures of the tightening of corporate budgets and constraints on raising capital, the latest evidence suggests that companies are continuing to execute IT strategies and take on new data centre space, although at a more sedate pace than reported in previous years. As has been noted in previous analysis, IT integration and outsourcing continues to play a lead role in the take up of data centre infrastructure. For instance, in the UK, Atos announced a number of contract wins during the second quarter, including extension of its contract with the Welsh Government; a new data centre services contract with Scottish Government s agency Historic Scotland and the UK's Nuclear Decommissioning Authority. Also in the UK, BT won a contract to provide systems integration and managed infrastructure services to NHS Scotland and global design engineering firm Arup is outsourcing the management of its data centre to Vtesse Cirrus facilities in Hertfordshire. In Austria, Österreichische Volksbanken has awarded Kapsch their outsourced IT contract, whist in Sweden, EVRY has entered into an agreement with Swedish rail company, SJ, to provide IT services. In addition, in Finland, Tieto has signed an IT outsourcing agreement with the Finnish Federation of the Local Insurance Group and Tapiola to provide IT and data centre infrastructure services, whilst in Paris, France,, Digital Realty Trust signed a new long-term lease with internet hosting and managed services company Ecritel. Colocation suppliers provide some evidence that take up of simple rack and floor space services continues, although quantifiable evidence remains thin on the ground. In the UK,, City Lifeline is providing Japanese systems integrator IIJ Exlayer with data centre services in its London City facility and the Principality Building Society has selected Mitel's Welsh data centre for its colocation service. Provident Financial used the move of its Bradford headquarters as an opportunity to relocate its data centre to Node4 s facility in Wakefield, whilst Interxion reported that IT services provider, Fifosys, will locate is cloud based solutions to its London data centre. MARKET NEWS INVESTMENT The second quarter of the year has been a particular busy period for merger and acquisition activity. Agreements were reached for the acquisition of Cable & Wireless Worldwide by Vodafone for a price in excess of 1 billion. When enacted, the deal will see the company become second to only China Mobile as the largest telecommunications company in the world. Meanwhile, CGI Group has said it had agreed to buy Anglo-Dutch IT services company Logica for a reported 1.7 billion. In Germany,, Equinix has announced it had agreed to acquire ancotel, a provider of carrier-neutral colocation and interconnection services in Europe. With this acquisition, Equinix gain a Frankfurt data centre with 2,1 m2 of capacity. In addition, Webzilla Group, a global web hosting company held by privately owned XBT Holding, acquired Luxembourg s largest hosting provider Server.lu. In the UK,, PEER 1 Network Enterprises announced that it has completed the acquisition of managed hoster NetBenefit (UK), whilst Six Degrees Group reported that it has expanded its UK network capabilities with the acquisition of Datahop, an international data centre interconnection business bringing 16 new PoPs onto the Six Degrees core network. Also during the quarter, NTT Com announced it had acquired 85% of data centre services company, Gyron. One of the most significant real estate transactions saw Digital Realty Trust announce that it had entered into a definitive share purchase agreement to acquire a threeproperty UK data centre portfolio from developer Sentrum. The portfolio comprises approximately 7,7 m2 of gross space across three data centres located in Woking, Watford and Croydon. The purchase price of the portfolio could reach approximately 716 million, subject to a variety of clauses, including the success in leasing activity in the portfolio over the next three years. Source: ixconsulting One major example of corporate activity saw Dutch financial services group, ING acknowledge that it has teamed up with HP and Colt as its primary partners to build data centres. Colt will build the data centre facility and the constituent modular units and HP will consolidate existing ING technology infrastructure and applications into a hybrid cloud setting. The plans form part of ING s broader data centre strategy which is to consolidate 16 data centres down to just two. Page 5

6 FORECAST The first half of 212 has displayed a more optimistic outlook being adopted from both end users and colocation operators despite the continued deterioration of the European economy. Positive tones emerging from the economic headlines are currently few and far between with little indication of resolution to the unrest at present. It is therefore testament to the integral position that data centres now hold that market activity has been largely maintained during these unsettling times. As a result of the economic situation corporate activity has focussed on the need to optimise efficiency across all business areas. The pressure to keep a grip on spending remains of high importance and as such IT is being viewed as an area where savings can be achieved whilst sustaining competitive advantage. A result of this has been an increase in the level of new data centre demand deriving from the technology sector. In particular Cloud continues to form an increasing part of IT strategies that are being implemented. The current and future trend for business is to add greater flexibility and scalability to the functions which support core business. Cloud is viewed as an easy win in achieving both and is now forming an important source of new business to data centre operators. Business workplace innovation is only part of the story which will continue to fuel technology led demand. The digital social world continues to evolve at pace which in turn is adding to pressure on storage and connectivity and increasing the number of links required in the delivery process. The internet is central to this phenomenon whereby the internet based applications now form key parts of everyday life. This rapid growth is resulting in an increased demand on the technological support network with data centres a key part of this. Whilst a downturn in the economic fortunes maybe a temporary situation the growth in use and pace of change in the technology sector is here to stay. The confidence toward future demand shown by data centre operators is well founded, especially given the noticeable change in the social and business dynamics. Certainly examples of this confidence can be seen with the changing data centre landscape this year. Well documented has been the strategic acquisitions made by several of the major colocation operators aimed at strengthening market position and increasing operational footprint. Evidence of investment in new supply has also been forthcoming. This in part is as a consequence of a maturing market which is encouraging a realignment of business models to enable a widening of products and income maximisation. Further operator activity and sector consolidation is anticipated particularly with growth in data centre outsourcing expected to continue. Recent transactional evidence would suggest a business trend toward bringing smaller requirements to market, more frequently. It is clear that third party operations are well placed to take advantage of this if escalation continues. EUROPEAN TIER 1 MARKET HISTORY AND FUTURE PROJECTION Projection P 213 P Colocation Colocation Take-up Source: CBRE Research Page 6

7 MARKET NEWS FORECAST IT outsourcing continues to drive the market for technical real estate and there is plenty of research which suggest that it is likely to continue to do in the near future. Recent research from Gartner indicates that worldwide IT outsourcing revenues grew by nearly 8% during 211, with 43 service providers, who collectively grew by 9.5%, achieving revenues of US$1 billion or more during the year. Further evidence from data centre developer Sentrum s recent survey suggests that 78% of respondents currently outsource all, or part of their data centre space. Interestingly, the research shows that within the UK specifically, the degree to which organisations have outsourced data centre space has fluctuated over the last 5 years, in particular showing a sharp rise in 29, quickly followed by a fall in 21. Since 21, however, the sector has been gradually recovering and today outsourcing levels are almost back to where they were during the 29 peak. Amongst these strong indicators for the industry, however, a degree of caution is provided by research from Forrester Research, which claims that IT spending in Europe could virtually grind to a halt this year and next due to the on-going economic uncertainty regarding the euro currency. Whilst this less-than-optimistic outlook does provide some sobering conclusions with regard to possible growth within IT services market and therefore the data centre market, it should be taken against the wider range of generally positive research suggesting that the European technical real estate market will continue to enjoy a degree of robustness through the rest of the year. Source: ixconsulting Further evidence supporting the relative health of the data centre market is provided by a series of surveys which suggest that the markets for hardware and software used in data centres remains robust. For example, a recent report from Infonetics suggest that the global data centre and virtual security appliance market is on track to grow to a US$4.4 billion opportunity by 216. In addition, the same company suggests that social networking, video sharing, data centre innovations, and the eventual shift to cloud computing models will provide steady growth in the hardware market. Further research supports the notion that cloud computing is set to continue as an important driver of the data centre market. According to Gartner, organisations worldwide will spend US$3.6 trillion on IT in 212, up 3% year on year largely as a result of increased investment in cloud computing. Gartner expects enterprise spending on public cloud services to grow 2% from US$91 billion worldwide in 211 to US$19 billion in 212, topping US$27 billion by 216. In addition, Broad Group s Datacentres Europe IV report suggests that cloud computing is an increasingly important vertical market driver with colocation companies now seeing as much as 3% of revenues from this segment. The report goes onto suggest that on a geographic basis, there remains a focus on Frankfurt, Paris, London and Amsterdam, with cities such as Dublin and Zurich seeing strong growth. Page 7

8 MARKET FOCUS LONDON Significant operator activity in London has attracted recent data centre headlines with the acquisition of the Sentrum portfolio by Digital Realty. The purchase strengthens the already well established presence of Digital Realty in the London Wholesale market. It also re-emphasises emphasises the operational importance of London to major data centre providers. In terms of market activity the second quarter of 212 has not matched the exceptional opening to the year. Although a repeat of Quarter 1 was not expected total colocation take up for the quarter was 1,475sq.m or 2.1MW of IT power, sharply down on the first quarter. The total amount of colocation space transacted for the year is now 1,545sq.m or 16.5MW comfortably ahead of the total for the first half of 211 and already 87% of last year s total. To date the total space and power secured in Wholesale transactions account for 8% of the data centre colocation take up total this year. The Wholesale sector is benefitting from several sizeable longer term market requirements, mainly derived from the Technology sector, that have finally been placed in 212. Additionally some returning financial service sector demand has further added to the list of potential new contracts although the unsettled position of the global economy continues to deter some. A steady supply of new data centre space continues to be unveiled as confidence in the London market is maintained. In the Wholesale market new supply is being added with the Stockley Park and Slough sites from Infinity along with the Chessington facility from Digital Realty. London retailer operators are also progressing plans to provide additional fitted space with new build projects at Interxion, Equinix, Telecity and new entrant Volta adding to the new space at LDEX opened in April. KEY MARKET HIGHLIGHTS COLOCATION MARKET KEY INDICATORS Supply Vacancy Rate Take-up 267,163 45, % 1,475 Comparison on previous quarter 5-YEAR COLOCATION SUPPLY Stock 5-YEAR COLOCATION TAKE-UP Savvis announced the opening of a new 1, m2 data centre in Docklands Volta announced the launch of their new 8,5 m2 data centre in the city fringe set to open early next year. Gyron announced it is to open a new 5.5 m2 in Slough early next year City Lifeline is to provide Japanese systems integrator IIJ Exlayer with data centre services Take-up 5-year average Source: CBRE Research Page 8

9 MARKET FOCUS PARIS In the first half of 212, the data centre market in Paris is displaying encouraging signs which provide an indication of returning demand. With target growth of only.3% this year the economic situation in France remains, like much of Europe, a precarious one. The second quarter of 212 has seen colocation take up back to levels close to the longer term average. Total take up in Quarter 2 was 2,455sq.m or 3.5MW of IT load. The total for the year is now at 4,655sq.m or 6.8MW which is almost triple the amount transacted in the first half of 211 and 84% of last year s total. These statistics provide encouragement that the worst has now past in the Paris market and also highlights the difficulties encountered in 211. The Paris market is heavily dependent on corporate demand with Paris retaining one of Europe s highest concentrations of corporate occupiers. Demand from this area continues to be slower than seen previously although this would suggest there may be pent up future demand to emerge from this base. The most recent increases to demand have been from technology based organisations which in other key European markets have been vital in supporting take up levels. Growth in Cloud services and Digital Media in particular are a significant source of new requirements in the market. Recent operator activity would support the opinion that Paris is a market with significant growth potential. Interxion and Equinix in particular have committed considerable investment to expanding their operational footprint in the Paris market. The total supply pipeline in 212 could now deliver up to 6,5 sq.m of new available supply to the Paris market, which will be necessary to maintain market balance longer term. KEY MARKET HIGHLIGHTS Digital Realty Trust has signed a new long-term lease with Ecritel, a provider of internet hosting and managed services for businesses, at Digital Realty's Paris facility. Interxion announced that VPS.net has chosen to host its cloud services for France and Germany in Interxion's data centres in Paris and Frankfurt. COLOCATION MARKET KEY INDICATORS Supply Vacancy Rate Take-up 97,751 1,2 1.25% 2,455 Comparison on previous quarter 5-YEAR COLOCATION SUPPLY Stock 5-YEAR COLOCATION TAKE-UP Take-up 5-year average Source: CBRE Research Page 9

10 MARKET FOCUS FRANKFURT Bolstered by the comparative strength of the German economy in the Eurozone the data centre market in Frankfurt has continued to see demand levels maintained in the second quarter. At the half way mark in 212 the total space transacted is on par with that seen in 211, thus raising confidence of a similar total take up at year end. Take-up for the quarter was 1,665 m² or 1.7MW of IT power transacted, representative of the longer term quarterly average. This total is less than in the first quarter although higher than the equivalent period last year. Total take up in 212 is now comparable with 211 at 4,1sq.m or 4MW. The main source of new demand continues to come from technology-based requirements with an increasing importance being placed on connectivity. The Telecoms and Internet Service Providers (ISP s) have been particularly active participants bringing new requirements to market in order to support growing pressure on network capacity. This in part is being fuelled by a rise in demand for greater amounts of content to be delivered over the internet which is creating new demand from dedicated content delivery providers. Corporate demand continues to be slower than in previous years although this may be partially as a result of new Cloud deployments. Cloud usage is a rising source of new business to Frankfurt s data centre operators and is expected to continue to grow as interest develops in maximising efficiency through smarter use of technology. In response to demand new space is being developed in the city. New facilities at Interxion, opened in April and E-shelter, scheduled to open in November, collectively will add an initial 7, m² or 9MW of available IT power. This provides further evidence of confidence in future demand growth for outsourced data centre services from a section of the leading data centre operators and will maintain a healthy supply/demand balance. KEY MARKET HIGHLIGHTS Interxion announced the opening of its seventh data centre in its Frankfurt campus totalling some 1,5 m2. COLOCATION MARKET KEY INDICATORS Supply Vacancy Rate Take-up 15,658 23, % 1,665 Comparison on previous quarter 5-YEAR COLOCATION SUPPLY Stock 5-YEAR COLOCATION TAKE-UP Equinix has acquired ancotel, a leading provider of carrier-neutral colocation and interconnection services. With the acquisition, Equinix gains a 2,1 m2 data centre in Frankfurt Take-up 5-year average Source: CBRE Research Page 1

11 MARKET FOCUS AMSTERDAM The Amsterdam market continues to generate new enquiries reinforcing the city s position as an attractive option for data centre users. Total take up at present is marginally below the rate of the previous two record years, although expectations are that the present level of market interest will result in an increased number of completions in the second half of the year. Total take-up for Quarter 2 remains consistent with the longer term quarterly average at 1,69 m² or 2MW of IT power. TMT sector demand remains the key source of new enquiries with Amsterdam s high level of connectivity crucial to operational efficiency for this sector. In particular Cloud and Hosting providers have seen a presence in Amsterdam as imperative to establishing a successful European platform. It is this type of business along with other high connectivity based operations that has driven exceptional demand in recent years. The growth of internet based applications both for business and social use would suggest that Amsterdam can be relatively confident of a consistent flow of new demand going forward. This will apply further pressure to data centre supply in the city which has been eroded by sharp growth in demand during the last 2 years. Amsterdam has seen the highest growth rate of new supply of all of the European tier 1 locations in the past 5 years. Despite this the first quarter of this year showed that total available space had dipped to a 3 year low of 9.1%, although this has eased marginally in the second quarter to 11%. New space is scheduled to be brought to market by Equinix, Interxion, Evoswitch and Telecity in the next 12 months. This will clearly be required to return the market to a state of equilibrium. KEY MARKET HIGHLIGHTS Colt announced its first modular data centre deployment in the Netherlands. It will initially deploy 2, m2 of data centre space at the site, before increasing its capacity to 2 halls over 1, m2. ServInt announced it is moving in to its new European data centre in Amsterdam. Web host SiteGround has announced it is to lease servers in SoftLayer s data centre in Amsterdam. COLOCATION MARKET KEY INDICATORS Supply Vacancy Rate Take-up 79,867 9, % 1,69 Comparison on previous quarter 5-YEAR COLOCATION SUPPLY Stock 5-YEAR COLOCATION TAKE-UP Take-up 5-year average Source: CBRE Research Page 11

12 MARKET FOCUS MADRID Against a backdrop of increasing economic difficulty it is unsurprising that a consistent flow of new demand continues to be absent from the Madrid market. Demand for outsourced data centre services began to show improvement in the first quarter which generated a higher amount of take up. Although new enquiries continue to emerge the second quarter has not seen take up meet the same level. The focus for corporate occupiers at present is on cost reduction and this is having a polarised effect on data centre demand in Madrid. In one sense the need for businesses to retain capital to support core functions is encouraging outsourcing to be considered. However, companies are well aware of the challenging business environment and are cautious about endorsing any significant spending in particular as a replacement of a recognised in-house function. Despite this, smaller requirements are present in the market with local operators well positioned to take advantage. Total take-up in Quarter was around 6sq.m or 5kW of IT load significantly less than in the first quarter reflecting some hesitation in the market. However, at the half year point a total of 53sq.m or.4mw has been transacted in Madrid which is more than double the equivalent period in 211. Supply of new available space is currently low in Madrid with operators historically reluctant to fit out significant tranches of new space without the security of a contract. At present the level of available supply in Madrid is.58%. Interxion s recent announcement regarding their new facility due to open in 213 should alleviate supply restrictions and may be timely should the push toward outsourcing gain further momentum. COLOCATION MARKET KEY INDICATORS Supply 3 25 Vacancy Rate Take-up 27, % 6 Comparison on previous quarter 5-YEAR COLOCATION SUPPLY Stock 5-YEAR COLOCATION TAKE-UP KEY MARKET HIGHLIGHTS Interxion announced that it is building its second data centre in Madrid to be constructed in two phases, each phase providing 8 m2 of equipped space and over 1.2 MW of customer power. Interxion has announced that Gigas, a Spanish IT company, has decided to host its cloud service platform in Interxion s Madrid data centre Take-up 5-year average Source: CBRE Research Page 12

13 DATA CENTRE TOPICS OVERVIEW OF THE UK RETAIL COLOCATION INDUSTRY 212 By Tim Anker, founder and Director, The Colocation Exchange Ltd Retail Colocation Pricing in the UK. First point to make when discussing colocation pricing is somewhat ironic in that I don t believe pricing has always been the strongest driver with most of the client projects we ve worked on over the past 14 years. Usually it s the other factors that come into play first such as location, carrier access, standards and quality before pricing is looked at. For example we have no problems selling capacity at the highest prices in Europe, despite the fact that significantly cheaper options exist in the market elsewhere, as clearly the benefits to the end user of going into that particular facility outweighs the supposed cost-savings of going to a cheaper site. The good news for end users is that in today s market the range of options available is as wide as its ever been. When looking at data centre pricing first point to make is not to confuse rising rack prices with rising costs per kw, indeed it mystifies us why many of the large companies prefer to report on rack pricing alone given it can be quite confusing. At Colo-X we ve long preferred to analyse cost per kw, including usage, as opposed to a simple rack or cabinet price. The point being that a 4kW rack will of course cost more than a 2kW rack and most new sales in the market today are of this sort of power density, given this is the typical standard of new facilities (whereas the older 2kW per cabinet sites are mostly sold out). But we are finding the cost per kw of 4kW cabinets is in fact much better value than their lower power cousins; for example in London Docklands a 2kW cabinet may cost 125 per month, 625 per kw, whereas a 3.5kW (16A) cabinet in the same facility might be 145 per month, 415 per kw per month. As a general observation, colocation pricing remains steady in the UK in 212 if anything we are seeing an increasing number of price deals being offered in various shapes and forms, including even the tighter markets such as London Docklands and the City, so the concept of ever rising data centre costs is not one we subscribe to, especially in a market that in our view doesn t have supply constraints and where there is a long list of keen and very enthusiastic new entrants. Retail Colocation Pricing Today. The Colo-X view on retail colocation pricing has been that the market can be conveniently divided into two distinct sub-markets. We see a premium market in Central London where price per kw ranges from 4 per kw up to 65 per kw and a second wider market covering the facilities away from central London, mostly around the M25 and the rest of the UK in this market prices can get as low as 2 per kw per month up to around 45 per kw per month but even in this market there are in fact two fairly distinct sub-markets as the high end pricing in this market comes from the large scale premium operators and the low end pricing from the myriad of new entrants or wholesale capacity (offered on a retail basis either directly or via resellers). RETAIL COLOCATION PRICING /kw/month (inc usage) Central London Rest of UK Estimated Standard Premium Operators New Entrants Page 13

14 DATA CENTRE TOPICS To flesh this out, typical examples of pricing we are seeing are as follows: Location Cabinet Typical Pricing Central London, Docklands 2kW 125 pcm 625 per kw per month Central London 4kW 16 pcm 4 per kw per month M25 Location, new entrant 3.5k-4kW 1 pcm 28/ 25 per kw per month M25 Premium operator 4kW 16 pcm 4 per kw per month This wide range of pricing in the market presents a new challenge for data centre users site and operator selection! Five years ago there wasn t much choice in terms of location (the industry was largely based in London Docklands) and there were only 4 or 5 operators. Today the list of locations and operators continues to grow to the extent that keeping up with the new options is almost a full time job in its own right. But the point is buyers now need to think a bit more about their colocation deployments. A general data centre requirement, needing say a few cabinets and some connectivity really has a wide range of options today and could easily source a good quality facility for around 1 a month for a 4 kw cabinet somewhere around the M25, paying only 25 per kw per month. On the other hand, a carrier seeking interconnects with other carriers is still bound to have to consider London Docklands, where carrier choice, by historic accident, remains strongest and the point is for these customers paying 625 per kw remains is also a good deal (in fact it s a no brainer ) given the number of potential carriers they can simply and quickly reach via cross-connect. Another good example of such site specific clients is the financial trading community, where the value of low latency to various trading exchanges far outweighs the cost of kw in the data centre Equinix in Slough springs to mind as a good illustration of this effect. So the interesting point from a market point of view is that the host of new entrants, whether service provider or wholesale, is well placed to meet general data centre demand. On the other hand premium markets are also developing to service specific niches. The challenge for buyers is to carefully consider their needs and select the best fit indeed it may even make sense to house part of your operations in high price premium site to access the services required, but then to house your general data centre needs in a facility perhaps at half the price per kw or less of the premium site. At Colo-X we worked on a project not long ago for a digital photo library who were housed in entirety in a site in London Docklands what we ended up doing was keeping a single cabinet in situ, where network could be easily accessed and where images most in demand could be cached locally, but 9% of their data centre kilowatts were moved to Reading, at significant costs savings and the small latency increase was definitely within the tolerances of the users of this type of service. Conclusion Ignore the hype! The data centre industry is simply not facing an impending supply side crisis that many commentators (not to mention a few operators) would have you believe. The supply pipeline, even in Central London is in good health. But the increased range of options means data centre buyers really need to think about their deployments as they can now pick and choose to match facilities with appropriate applications an amazing change from the situation only a few years ago. Finally, don t feel data centre prices are on an ever rising uptrend they aren t. Indeed prices on average, across the industry, are falling as we add more lower cost sites into our industry picture. All in all, a healthy picture for end users. Page 14

15 DEFINITIONS STOCK 1. Colocation stock: Carrier neutral data centres where the operator allows any carrier to connect into the facility and to connect to third parties within the facility, not discriminating between different carriers and charging only nominal fees for interconnection. This is split into two distinct offerings: Retail: targets smaller requirements in terms of floor space/it power and offering an element of colocation/managed services. Wholesale: targets larger requirements in terms of floor space/it power and offering real estate FM services only. 2. Self-build build: typically land for development or modern empty warehouse which is acquired for conversion to a data centre for use by an end-user who will use the space for their own purposes, i.e. a corporate. 3. Threat stock: Surplus carrier/webhosting space offered to the market as competing stock on a carrier neutral basis SUPPLY 1. Retail colocation supply excludes un-built phases of the data centre. Only fitted raised floor space, which is ready to sell, is included. of space and vacancy rates are based on fitted space only. 2. Wholesale colocation supply includes both fitted and shell data centre space. Typically wholesale operators sell shell space which is built out to suit customers. of space and vacancy rates are based on both fitted and shell space. SPACE TYPE Shell: shell & core space is the base real estate of a data centre, a wind and watertight structure with exposed floor and ceiling slabs and exposed finishes to the walls. The landlord would obtain permissions for data-centre use and make provisions for tenants to install their own chillers and back-up power generating equipment. In addition, an incoming diverse raw HV (high voltage) power supply would usually be provided. Fitted: fully-fitted fitted space is ready for tenant IT equipment to be installed almost immediately or subject only to minor works being carried out to account for bespoke equipment and layouts. TIER 1 MARKETS Amsterdam, Frankfurt, London, Madrid, Paris TOTAL MARKET TAKE-UP This comprises Colocation, Self-build and Threat stock (either surplus carrier or corporate facilities). Page 15

16 DATA SOURCE CBRE in association with Jonathan Heap, Director, ixnewssearch ixnewssearch is the leading daily news research service developed for organisations with a strategic interest in the data centre and mission critical facility industries. Groundbreaking at its inception in 21, the interactive ed document is packed with global news providing invaluable and timely insights into the business of data centres. CBRE DATA CENTRES CBRE formed a Data Centre team in 1994 to address the specialised technical real estate needs of high-tech firms such as telecommunications companies, data centre operators and corporates. Core technical real estate services provided by the Data Centre team include: Investment Disposal one-off assignments, multi-site marketing campaigns Acquisition one-off off assignments, worldwide network rollouts Consultancy consolidation strategies, Mergers & Acquisitions Asset Valuation Bank, Corporate Project Management, Development Monitoring, Due Diligence, Building and M&E surveys Research market reports, statistics, take-up forecasting CBRE has monitored worldwide Colocation supply statistics since This bulletin relates only to the European Colocation Tier 1 markets. Additional market statistics are available on request. For additional data centre market information please contact: Andrew Jay Executive Director t: e: andrew.jay@cbre.com Darren Mansfield Analyst t: e: darren.mansfield@cbre.com CBRE has developed its market leading Data Centre Finder, which has become the "go to" site for occupiers searching for data centre space globally. If you would like your data centre to be listed on the site, please contact: Simon Moore: simon.moore@cbre.com For a FREE, 3-week trial of ixnewssearch please contact: Jonathan Heap t: e: jheap@ixconsulting.co.uk Disclaimer 212 CBRE CBRE Limited (CBRE) confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist. Page 16