Data centres are a major FDI growth sector: according to The fDi Report 2015, between 2009 and 2014, greenfield investment in data centres has increased by an average of almost 12% year-on-year by projects and 3.5% by capital investment. Experts attribute this to companies’ ever-greater reliance on IT, as well as the growth of social media and online retail.
“In simple terms it is the exponential global adoption of technology and the creation of content that has been behind the enormous growth that we have seen in recent years,” says Simon Ford, head of the data centres Europe, Middle East and Africa team at Colliers International.
One company contributing to this growth is Netflix, now the world’s biggest user of internet bandwidth. For years, Netflix has been closing in-house data centres and using third-party facilities. In fact, in August the Wall Street Journal reported that Netflix would be closing its last data centre and moving to the Amazon Web Services (AWS) public cloud. This makes Netflix the first big company to run all of its information via the cloud.
Netflix accounts for 36.5% of downstream traffic in peak evening hours in North America, reports Sandvine, a provider of intelligent broadband network solutions for fixed and mobile operators.
AWS serves more than 1 million active customers in some 190 countries. The company is constantly expanding global infrastructure to help customers achieve lower latency and higher throughput, and to ensure that their data resides only in the region they specify. It operates data centres in the US, Europe, Brazil, Singapore, Japan and Australia. Next year it plans to build cloud data centres in India to serve local customers with better performance and accommodate possible data sovereignty needs.
“Besides market demand, stricter data protection laws and legislation around data sovereignty have an impact on local market demand around the world,” says Mr Ford. A good example is Germany, where laws mandate that German data must be held specifically in Germany as a result of recent revelations over US data espionage. Consequently, cloud providers such as AWS, Softlayer and Microsoft are rethinking their platform needs and acquiring node sites.
In October 2014, AWS opened a cloud data centre in Frankfurt, a move intended to expand its footprint in the EU. According to analyst Data Center Knowledge, Frankfurt is one of the most connected cities in Europe, thanks to it being home to the Deutscher Commercial Internet Exchange, one of largest internet exchanges in the world.
AWS operates facilities in Amsterdam, Marseilles, Milan, Paris, London, Stockholm, Madrid and Warsaw, as well as in Ireland. The latter's digital economy was highlighted in a recent Colliers International report as performing particularly well: since 2008, Amazon, Microsoft, IBM, EMC BT and Google have opened facilities in Ireland, representing more than $1.5bn in investment.
Specific dynamics that drive data centre location selection include latency (the ability to transfer data at almost real time), environment (the ability to power and cool data centre infrastructure cost effectively and reliably), fiscal considerations (tax benefits/incentives), telecoms infrastructure (fast connectivity between data centres and offices), security/risk analysis, the availability and cost of land, and the availability of skilled labour.
“Once you rule out latency, the ability to power and cool your infrastructure at a lower cost becomes more important,” says Mr Ford. “This makes locations further afield more attractive.”
Mr Ford uses BMW as an example. Several years ago, the German auto manufacturer moved some of its high-performance computing capabilities to a data centre operated by the UK’s Verne Global in south-west Iceland. “Power there is relatively cheap,” says Mr Ford. “Cooling is provided mainly by the local climate.” BMW has also earned praise for using the Icelandic centre because of its lower carbon emissions.
“Facebook and Google have also focused on Scandinavia for hosting non-latency-sensitive applications,” adds Mr Ford.
According to technology advisory company 451 Research, there were about 4.3 million data centres worldwide as of the fourth quarter of 2014, with developed countries leading the pack for attracting data centre FDI. The fDi Report 2015 indicates that between 2009 and 2014, the US dominated with more than 53% of projects, followed by the UK (8.75%), Japan (7.55%), Germany (4.27%) and France (3.17%). Yet a recent survey published by 451 Research found that the number of data centres in North America and Europe fell by 1% and 2%, respectively, in 2014, while Asia-Pacific, Latin America and the Middle East and Africa region saw 2% growth rates year on year, largely because those markets are under-served.
According to Sandvine, Facebook and Google now control more than 60% of total mobile traffic in Latin America. In January 2015, Google’s data centre in Quilicura, which is located near the Chilean capital of Santiago, became operational. Besides being Google’s first data centre in Latin America, it is also that continent’s most efficient and environmentally friendly.
Turkey is another market where Mr Ford sees opportunities in an under-served country. “The population of Istanbul is well educated, with an aggressive profile of smart technology adoption,” he says. However, Istanbul has a fraction of London’s data centre space available despite its population: 14 million, compared with London’s 9 million.
Consequently, Zenium Data Centers opened its state-of-the-art, 12,000-square-metre earthquake-resistant data centre campus in the city in September. The campus is the first in Turkey to provide wholesale technical space that can be completely customised to accommodate a client’s specific requirements.
China is also experiencing an explosion in growth when it comes to data centres. “However, this is a difficult market for international companies to access,” says Mr Ford. He also suggests keeping an eye on Indonesia, Colombia, Russia, and Nigeria, saying: “Each is attracting a good level of interest from operators.” Nigerian multinational telecoms company Globacom operates a data centre in Lagos where it provides co-location, disaster recovery and dedicated hosting services.
A number of multi-tenant data centres are emerging that offer companies flexibility where capacity is concerned. “We are seeing clients being able to take rack space in a data centre, then transfer this to the cloud at any given time in the future at zero cost,” says Mr Ford.
Mr Ford and his team highlight Google, Microsoft and Amazon’s R&D projects, which assess how best to implement their infrastructure in the future. “Time will tell as to whether this will stay with big data centre boxes providing the cloud, or thousands of smaller sites providing the same, or somewhere in between,” he says.