There seems to have been an unrelenting stream of reports about a massive supply and demand imbalance “threatening” the colocation industry over the past year or so now, but is this panic misplaced?
In a keynote address at the Hosting and Cloud Transformation Summit, October 11, Antonio Piraino, Research Director at Tier1 specifically addressed one of the most oft questioned they were being asked: “is the data centre sector over supplied”? Once again Piraino reiterated the Tier1 view that despite admitted “large amounts of supply”, Tier1 “still see demand outstripping new supply.”
Today, there is both demand and supply. If we compare the current market with that in 2007, when the market was definitely short of supply, then I think today’s market can best be described as very healthy.
There is a premium market located in Central London and demand in this market remains robust, despite some of the highest colocation prices in Europe. The prices are worth paying if you need to connect up with other networks and carriers. Expect to pay up to £650 per kW per month including power used.
The Central London market remains very active for mostly wholesale customers (carriers and ISPs) who seek points of presence here to house their switching equipment. They are usually looking for part racks up to a few racks and not that power hungry.
The supply is meeting the demand. Even when occupancy is near 100% there have been significant amounts of new supply being made available over the past few years, primarily from the new Telehouse West building but with more to come from both Telehouse West and as Telecity release the first 3MW of welcome new capacity in their Harbour Exchange complex (and with a further 3MW of announced capacity behind this).
There is also some new capacity in Docklands in a growing number of smaller facilities such as the new sites from Eurohub, QIComm and more recently from Cogent. Demand will always remain strong in the Docklands which is a unique and as yet unrivalled connectivity hub in both the UK and Europe.
Away from the central London market facilities, despite the wide geographic spread, are much more similar to each other than they are to those highly connected sites in Central London. Carriers per site range from two or three to about 15 in the larger sites; this compares with 50+ in the Docklands based sites.
Specifications are also markedly similar; pretty much everyone claims to be offering Tier3 standard space but there are marked differences in pricing, with the large pan-European operators suggesting premium prices whereas supposedly similar quality space is available at up to half their pricing.
The demand side in this market is much more varied. There is some retail business, one or two racks, mostly from clients that want both the convenience of a good quality facility near to them and without the hassle of having to go into Central London or alternatively you have central London clients seeking a diverse location to their primary sites in town.
This market is also able to accommodate much larger customers, taking anything from a few hundred kilowatts up to a MegaWatt or beyond, though the larger customers tend to deal direct with the specialist wholesale operators. Most systems integrators will fall into this category and many corporate customers including banks, pharmaceutical and hosting companies.
It is interesting to note that as a result, customer numbers per facility are much lower in this market than in Central London, suggesting capacity is sold in larger amounts to fewer customers.
There are also new entrants appearing in continental data centre markets as well. In Amsterdam Evoswitch are set to become a significant local player (potential of 40,000 sq m on their existing site with 5000sq m already built-out) whilst other new entrants to the Dutch market such as Switch Datacenters are also emerging (5MW site in phase 1).
If there has been one key new trend this year it has been the emergence of direct corporate demand. Corporate clients are realising their in-house data centre is either no longer fit for purpose or simply too inefficient to maintain. All are asking not only about colocation but also other services, for instance virtualisation or cloud based solutions.
To sum up, demand is indeed healthy but so is the supply pipeline. Talk of further capacity crises is simply misplaced. Demand remains robust for central London despite high prices. In the market around London significant choice and a wide range of prices exist for pretty similar facilities yet all operators seem to be making rapid progress with new entrants appearing all the time. And in the regional UK market nascent demand is at last emerging. While Europe offers an interesting alternative. All in all, a very healthy picture.