Analysis: What are the prospects for the UK data centre industry, we look at the numbers and speak with the key experts.
There are over 250 collocation data centres sitting in the UK with power supply exceeding 354 MW, enough to power a city of just over 600,000 people.
The overall data centre space in the UK, from both colo players and internet service providers, accounts for 669 MW of power spread across nearly seven million sq ft of server flooring, according to Tariff Consultancy.
The UK might be far short of the US’s more than 1500 colo sites, according to Data Center Map, yet, the country’s data centre business is thriving with cloud-hungry enterprises and consumers, and the rise in IoT data generated by devices and services.
The global collocation market is expected to grow its revenues at a CAGR of 9% until 2017, topping $30 billion by then, according to the Synergy Research Group. The firm and other market watchers put the UK as the second largest collocation market by revenues, behind the US and in front of Japan, Germany and China.
As London claims top colo European title, CBR also asks the experts what Brexit would mean to the nation’s data centre sector.
According to a recent CBRE report, "European Data Centres, Q4 2015", London, the main colocation hub in the UK, has reclaimed the top spot for best performing European data centre market following its growth in 2015.
In 2015, London outperformed its European counterparts with 25.9 MW of customer IT power sold during the year.
In comparison, the other largest markets by customer IT power sold during the year were Amsterdam (with 17.9 MW), Frankfurt (16.2 MW) and Paris (2.5 MW).
The markets of Frankfurt, London, Amsterdam and Paris (FLAP) enjoyed an overall 62MW of take-up during 2015.
With the colocation take-up, London represents, as of December 31, 2015, 42.8% of the total power supply in these four markets with 354 MW (up from 337 MW the previous year) in an overall picture of 827 MW (Q4 2014: 771MW).
In the study, it shows that London also has the highest availability rate of power at 71 MW, however, this has decreased seven MW from 2014.
Amsterdam, Frankfurt and Paris have an availability of 29 MW, 37 MW and 16 MW respectively. All have increased their availability when compared to the year before.
Mitul Patel, associate director for data centre research at CBRE, told CBR: "London will continue to be the dominant market in Europe in the long-run but the gap in levels of demands across the major markets of London, Frankfurt and Amsterdam has certainly narrowed as Amsterdam’s leading connectivity and Frankfurt’s reputation as a significant financial hub coupled with concerns over data sovereignty continue to propel both of these markets."
However, Daniel Beazer, senior consulting analyst at Cogeco Peer 1, said that it is unsurprising that the UK came out as Europe’s top performing data centre market.
"Amazon and Microsoft announcing Cloud builds has probably given the market a bit of a fIlip. The cloud giants were always going to have to build out infrastructure in the UK to target government business," he told CBR.
CBRE predicts London to continue to growth in 2016, with the construction of new facilities from colos, such as Infinity in Stratford and Gyron in Hemel Hempstead.
The divestment of some Equinix hubs, following the acquisition of Telecity, will also generate new streams of opportunity for other collocation operators.
Patel said: "We expect 2016 to begin well as we see both a strong pipeline of supply (Gyron Hemel Hempstead and Infinity Stratford) on the horizon as well as continued demand from ongoing demand from the IT Infrastructure players who are very much still active and also enterprise firms who can use the on-off ramps to the cloud provided by IT Infrastructure players as a means to evolve towards more hybrid-style solutions themselves. The latter is a move now evidenced and reported by operators themselves."
Looking at the major recruitment websites in the UK, all of them have over 1,000 job vacancies for data centre related jobs, ranging from middleware support engineers to technicians, proving that the industry is very much alive.
This according to Steve Wallage, MD at Broadgroup, is due to "strong supply plans for 2016 including NTT, Digital Realty, Equinix/TeleCity, Interxion, Telehouse, KAO, Virtus Data Centres, Infinity SDC, Ark Data Centres, Volta Data Centres, Colt, Carbon-12, IO, and others".
"Demand looks set to remain strong," he told CBR. "Hyperscale players are more seriously considering the UK due to data protection/customer pressure. Recent deployments [that prove that] include Microsoft and IBM SoftLayer.
"Broader usage of collocation such as recent deals in government, insurance and retail [is also going to drive the industry]."
Why the UK?
The UK’s economy, the fourth largest in the G7 behind the US, Japan and Germany, but the fastest growing one in the group, is one of the main reasons according to Wallage.
Yet, the UK does not have the cheapest corporation tax, currently standing at 20%, with plans to reduce it to 18% by April 1, 2020. In this space, for example, Ireland performs better with a controversial rate of just 12.5%, Switzerland with a rate of 8.5% and Singapore at 17%.
Nevertheless, the UK still has a lower corporation tax than other countries such as the US (35%), Spain (28%), Italy (27.5%), Norway (27%), the Netherlands (25%), Japan (23.9%), Sweden (22%), Portugal (21%), and Luxembourg (21%), according to Deloitte.
Wallage said: "The UK’s corporate tax rate is the lowest in the G7 and joint lowest in the G20 for 2015."
He also pointed to the fact of London being one of the leading global financial hubs. According to the Global Financial Centres Index (GFCI) 2015, produced by a City of London think tank, Z/Yen, London is the second leading global financial centre, only behind New York.
As for areas of competitiveness, London is first in the financial sector development and infrastructure sub-indices. However, according to the GFCI, the capital is outshined by New York, which takes first place when it comes to business environment, human capital and reputational, and general factors (such as city brand and appeal, level of innovation and attractiveness and cultural diversity).
Wallage also said the UK is the second best global foreign direct investment (FDI) location, according to GFICA and the third best according to AT Kearney.
"According to the World Bank, the UK is the tenth best global location in terms of ease of doing business," he said.
As a result, companies from all over the world are descending into London and are in need for collocation data centre services.
Wallage said: "Outsourcing of data centre space [in the UK is] much higher than the European average, around 30% compared to about 18%."
He also hinted at the fact that the UK is experiencing a greater cloud adoption than other countries.
According to the Cloud Industry Forum (CIF), cloud adoption rates by British enterprises reached 84% in 2015 (up from 76% in 2014), including companies using at least one cloud service. This is up from 53% in 2011.
A CIF study from February 2016 has found that 63% of UK enterprises are now planning to move their entire IT estate to the cloud in the near future.
A 2014 European wide report from Eurosat, has placed the UK (24%) ahead of the EU’s average of 19% for cloud computing services used by European enterprises.
However, the UK was still behind other nations including Finland (51%), Italy (40%), Sweden (39%), Denmark (38%), the Netherlands (28%), and Ireland (28%). Non-EU members Iceland (43%) and Norway (29%) were also ahead of the UK.
Connectivity and power
Over the last 100 years, over 70 transatlantic and other sea cables have landed in the UK, coming from South, Central and North America, and other European countries.
More recently, Hibernia Networks and AquaComms have both deployed transatlantic fiber connectivity cables connecting UK data centres to the US.
Wallage said that connectivity with the London Internet Exchange (LINX) traffic is growing around 40% a year. The LINX also spans its reach to other parts of the UK with IXPs in Manchester (IXManchester), Edinburgh (IXScotland), Cardiff, and North Virginia, US (LINX NoVA).
As for the needed to keep data centres running, the UK saw in 2015 energy production rise 9%, the first increase since 1999, according to the Department of Energy and Climate Change.
Gas accounted for 31.3% of electricity supplied, up marginally from 30.9% in 2014, with coal accounting for 25.9% in 2015 down from 33.6% in 2014. Nuclear accounted for 23%, up from 20.5% in 2014.
Low carbon generation accounted for 42.9% of supply, up from 35.6% in 2014, boosted by higher generation from nuclear and renewables (wind, hydro and bioenergy), according to the governmental department.
According to Ian Bitterlin from Leeds University, data centres consume 2-3% of the national grid capacity and that is currently growing at about 15-20% CAGR.
In a keynote at the Data Centre South Summit 2016 in February, he said in the UK, £123.61 in business is enabled by one data centre kWh.
Beazer said: "Power will become a major issue in the next few years for data centres across western Europe. Green energy just will not be able to fill the gaps left by decommissioned power stations.
"If the UK can show a clear path to meeting its anticipated energy needs for the next five to 15 years, the UK data centre industry will have a major advantage."
How would a Brexit affect the UK’s data centre game?
As the UK prepares to vote to decide its future in or out of the EU, CBR asked the experts what it would mean to the data centre sector if Britain decides to leave the EU on June 23.
According to Wallage, voting out "may delay some decisions as it adds uncertainty and some of largest users have the luxury of being able to choose from multiple locations".
As for CBRE, Patel said that the ‘house view’ is that the EU referendum result and the implications if the UK were to leave the EU is creating uncertainty for investors, occupiers, developers and others involved in UK real estate.
"This climate will cause some in the UK to ‘wait and see’, although for others, uncertainty is an opportunity waiting to be grasped," he said.
"For the rest of Europe, however, there is no reason to expect a substantial impact on investors or occupiers in 2016. There is a significant amount of domestic and international capital already targeting real estate across continental Europe, in part due to low returns on government bonds and the volatility in equity markets. Regardless of the Brexit outcome, we do not see any reason for this to change."
Lastly, analyst Beazer said that the UK market is strong because it has plentiful access to inexpensive connectivity via hubs like LINX.
"English language speaking countries have an advantage when it comes to international companies looking to expand. The local data centre industry is clustered in the South East, which is also close to large European centres such as northern France and northern Germany.
"A ‘Brexit’ probably will not affect any of those factors."