Expo Real: Industry will add to covid boost for data centres

Occupier demand for data centre collocation space was strong before the covid pandemic but the health crisis and the need to shop online and work from home gave that demand further impetus experts agreed at the Real Asset Media Data Centres & Alternatives investment briefing live event at Expo Real.

“It’s been given a massive kick by covid. Suddenly, we’ve all realised how important that connectivity is when we’re trying to work from home, or watch Netflix or all those other things,” said Paul Lewis, Director, European Data Centres, Principal Real Estate Europe. “Likewise, that sort of kick in demand has been noticed by investors across Europe, so we’re now seeing an increase in demand from the investor community wanting to find access to the data centre market.”

In Germany, growth was 30% annually pre- and this increased to 40% during the pandemic. “I think the growth story so far is not finished yet,” said Peter Pohlschröder, managing director, NDC Garbe Datacentres Europe, Germany. He is also vice chairman of the German data centre association.

Growth at the data level is exponential says Lewis and which means that users will become more latency dependent – less tolerant of slow internet responses which increases the need for data centres to be sited near to centres of population.

Interesting opportunities will ‘follow trend to the edge’

“While you’re still seeing super-strong demand for tier one markets – Frankfurt, Paris, London and Amsterdam – what you’re now starting to see is demand spread out across Europe,” said Lewis. “So we’ve seen it hit the tier-two markets places like Milan, Madrid, Berlin,” he added. “You will never go wrong investing in a tier-one market, but equally some of the really interesting opportunities are to follow that trend towards the edge.”

“In Italy digitalisation is one of the three main themes with the switch to a green economy and equal sustainability for everyone,” said Alberto Iori, Director, Guizzo industrial properties, Italy. He said that the economy has to digitalise and the impact is mostly around Milan and Rome.

Pohlschröder pointed out that while usage figures are growing fast, the focus has been on consumers. In the future, business could drive even larger increases in the need for data centres.  “The bigger demand will be generated by industry, for example big data for artificial intelligence, autonomous driving.”

Cloud service providers’ requirements are also likely to increase substantially in Europe. “Europe has the second biggest economy in the world but only processes 7% of the world’s data, whereas the US tech companies process 73%.”

Cloud service providers often not local tax payers

Although local municipalities are more likely to welcome a data centre than, say a logistics building because they generate less road traffic, they do not employ large numbers of people and another consideration is that the occupiers, for example a large cloud service provider, is often not a tax payer in the host country.

“So, you have to have you have to get really creative in terms of how to support the municipality,” said Pohlschröder. In one case in Germany the cloud service provider sponsors the municipal swimming pool, for example.

In Italy masterplanning is not an obstacle because there are now so many uses that fall under the industrial umbrella, including logistics, manufacturing and data centres.”With industrial zoning you have many more options than you did in the past,” Iori said. Municipalities love to have hi-tech buildings to compete with logistics and other industrial uses. “Italy retains money for digitalisation that will be first priority so it is not a political problem.”