Another good year for data center operators lies ahead. According to Turner & Townsend analysts, 95% of data center operators expect demand for data center services to increase.
However, the rising costs of building new plants and climate policies could prove to be a major challenge. Turner & Townsend believes that the developing data center markets will benefit from rising prices in prime locations.
The industry has reason to be optimistic. 95% of data center operators surveyed said 2022 will be a better year for them than 2021. 70% believe the data center market is virtually recession-proof. However, according to the latest “Data Center Cost Index” from the analyst firm Turner & Townsend, opinions are divided on how data centers will cope with the green transition. The industry’s growth drivers are likely to be, among other things, the increasing digitization of business processes and the growing popularity of the Internet of Things (IoT).
Adaptation to climate regulations
According to the analysts, one of the biggest challenges for the industry is adapting the current IT infrastructure and existing data center facilities to the new climate regulations. Despite the high level of environmental awareness, only 40% of the industry believe their data centers will be carbon free (net zero) in the next 5 years.
In addition, according to the index, opinions are divided as to whether operators even know how to effectively reduce CO2 emissions. Due to the climate crisis, the pressure to reduce the energy consumption of data centers is increasing. In response, some operators are trying to prepare for a bottom-up green transformation of the sector. The analysts cite the “Climate Neutral Pact for Data Centers” initiative as an example. Among the participants are Microsoft, Google, SAP and Beyond.pl as the only Polish representative of the sector.
“The digital transformation significantly increases the need for storage space and computing power. Data center operators have made it a priority to respond to customer needs as quickly as possible. Questions of energy efficiency or ecology have receded into the background. Such an approach is self-defeating in the long run, be it in the context of the climate crisis or the expected European regulations and rising energy costs. From the perspective of data center customers, particularly large ones where reducing carbon emissions is part of their strategy, greater transparency is needed. This allows customers to judge which operators are really energy efficient,” explains Wojciech Stramski, CEO of Beyond.pl, an operator of data centers that run on 100% green electricity.
Popular markets are struggling with their first problems
The construction of new facilities themselves will also present a challenge. In the most sought-after locations such as Tokyo, Zurich or the FLAP-D market (Frankfurt, London, Amsterdam, Paris, Dublin), the demand for real estate exceeds the supply. In addition, the supply of energy is becoming scarce. As early as 2019, a report by the Irish Academy of Engineering pointed out that the increasing demand for central services in Dublin would require an expansion of the energy infrastructure there. The cost was then estimated at $9 billion over eight years.
In terms of investment costs, the capital of Japan is currently the most expensive according to the Turner & Townsend Index. Statistically, data centers there spend $12.5 for every watt of power consumed. The second most expensive data center location is last year’s leader – Zurich. The average cost in this Swiss city is $12.0/watt. It is followed by Silicon Valley with average costs of 10.3 US dollars/watt. The index’s authors point out that rising costs are affecting interest in investing in cheaper, developing markets.
“The Polish data center market is attractive for many foreign investors. In the discussions we are having, it is clear that we have a good location in the center of Europe, a high-quality IT infrastructure and relatively low real estate and energy costs compared to FLAP-D and Zurich,” Stramski continues.
Supply chain bottlenecks and increased prices are delaying the construction of new data centers
The situation on the construction market is an additional challenge for data center operators. 87% of companies surveyed by Turner & Townsend indicated that material shortages are causing delays in data center construction. Added to this are the price increases for building materials. In Europe, steel prices are said to have more than doubled in the last 12 months. Because of this, analysts point out that it is becoming increasingly popular to upgrade existing facilities and buildings rather than invest in entirely new data centers.
However, experts point out the disadvantages of such a solution. “Many of the plants in operation today were built several years ago. Many server rooms are located in buildings that were not designed with critical IT infrastructure maintenance and energy efficiency in mind. A lack of adequate server space, security measures and energy-saving solutions means higher risks and costs for customers. In addition, not all facilities are easily upgraded and adapted to modern requirements. It is optimal when data center operators have their own land and investment opportunities. That way, they can design and build a facility that meets their customers’ expectations and will continue to meet those expectations a dozen years from now,” Stramski said.
Relying on new developing markets at an early stage
Polish industry is successfully competing due to the lower cost of doing business and convenient location in the center of Europe. Analysts from PMR Market Expert estimate the power of all Polish data centers to exceed 88 MW (megawatts) by 2020 and predict growth up to 181 MW in 2026. Poland is likely to develop into an interesting new contact point for data center operators, managed service providers and corporate IT hosting in the coming years. Projects such as the construction of the 42 MW Beyond.pl campus in Poznan confirm the willingness to invest.