In recent years the technology industry has used “crisis” language to describe capacity shortages facing UK data centres and indeed in 2007 this was probably appropriate. But three years on, are we still at crisis point and more specifically, is there a looming shortage of supply as numerous recent reports suggest?
Certainly there are plenty of industry analysts warning that demand is still outstripping supply but if you look at the data centre industry as a whole and indeed listen to what the operators themselves are saying, a calmer picture will emerge.
A good example of recent opinion is TeleGeography’s Colocation Database which claims that colocation service providers are struggling to keep up with demand. Telegeography says that despite significant new construction colocation capacity is more constrained in 2010 than in 2009. “More than 41 percent of sites surveyed by Telegeography were at near 80 percent occupancy in mid-2010, up from 34 percent of sites a year earlier” this despite the researcher’s estimate that 1.5 million square feet of new colo space and 124 Megawatts of power has been added in the last 12 months.
In our opinion, this analysis is fine but we feel its weakness is that it only captures data from the established colocation operators, not the data centre market as a whole, thus omitting the large scale wholesale operators and the growing list of new entrants. Furthermore we believe that these three layers of the industry are starting to converge, especially in the so called mid-tier market, that is in the 100kW to 500kW range.
For example wholesale operators such as Digital Realty Trust are developing new “mid-market” products, available for as little as 240kW and on a lease basis as short as five years. We calculate pricing is some 25% cheaper than similar sized colocation deals.
While not directly comparable, given a wholesale solution would not include services such as on-site support, the shorter term and minimum entry size of only 240kW means these solutions are now very similar in nature with larger sized colocation deals.
Meanwhile the ever increasing list of new entrants have been moving up the value chain building good size and good quality facilities that match the larger operators in terms of standards. They are also growing in number, size and locations with the amount of colocation space outside central London now expected to overtake the capital, marking a turning point from the Docklands-centric nature of the industry to date.
It also shouldn’t be forgotten that the established operators themselves have both capacity today and a pipeline of new capacity they can bring into production. Take Equinix, who opened only the first phase of 50,000 sq ft in their new LD5 facility in Slough earlier this year, but who have three further similarly sized phases to come, while Telecity has announced the tripling of their Powergate facility in north-west London, from 9MW to 27MW.
Anyone who listened to Eric Schwartz’s (President of Equinix Europe) presentation at Data Centre World in February this year would have heard him clearly state he felt Equinix were able to manage their supply pipeline these days and the focus for the company was moving towards creating the value added marketplaces for specific industry verticals. Schwartz felt the capacity challenge was no longer the dominant challenge for management.
New entrants are also continuing to bring on new capacity and represent a decent share of the market of “available space” i.e. that which is not already in use and a rising overall market share, albeit from a small base.
Finally a number of wholesale facilities remain unsold, even mothballed in one case, due to the severe curtailment in demand at that end of the market, particularly since the collapse of Lehman Brothers back in 2008. Surely if we were experiencing a tidal wave of demand this wholesale capacity would be snapped up?
This confluence of trends has meant the average costs of data centre services are now coming down in the UK due to the increasing choice in the marketplace.
Indeed the picture has changed so much in the London market that it can no longer be considered the expensive option in Europe. No doubt the Docklands area is still the premium market, charging over £600 per kW per month (including electricity usage) but bear in mind the Docklands is now being overtaken by the growth in facilities elsewhere.
If you look at London as a whole, including north-west London and the ring of new facilities around London, retail pricing per kW ranges from as little as £250 per kW per month for a Tier3 standard facility to around £450 per kW from the established operators.
Once the weakness of the Pound against the Euro is taken into account, the gap with Europe has all but disappeared and indeed the larger number of competitive new entrants in our market means local buyers are now probably doing better than those on the continent.
The economic situation today is such that CIOs will need to think very carefully about how data centre services are bought and what they actually need.
Firstly, the change will see us start to think about data centre capacity in terms of power rather than space. Secondly, with pricing so wide ranging, £200-£700 per kilowatt per month, CIOs will need to weigh up exactly what they need and be flexible with their options i.e. in certain facilities like Docklands, prices will remain firm due to limited supply. However, if a business does not need to be hosted in that market then there are many other options and indeed the choice available is increasing by the week.
Crisis no, a new dawn, yes.
Tim Anker is founder of The Colocation Exchange, a London-based firm that acts as independent specialist agents for data centre or colocation space and related services. Colo-X works with the full breadth of suppliers in the industry including the established operators as well as managed service providers and new entrants to the market.