CBRE predicts 2021 will be record-breaking year for European colocation demand

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Demand for carrier-neutral colocation capacity across Europe will hit record highs in 2021, and will remain elevated into 2022 and 2023, predicts real estate consultancy CBRE.

The hyperscale cloud and internet giants will be the main drivers of this demand over the next three years, particularly where the take-up of wholesale colocation capacity is concerned, said CBRE.

The onset of the Covid-19 coronavirus pandemic has led to a well-documented surge in demand for business and consumer cloud and internet services in response to governments across the world issuing stay-at-home mandates 

This has led to an uptick in demand for wholesale colocation among the hyperscale community, who now account for 80% of the demand for datacentre capacity across Europe.

CBRE’s data also suggests the retail colocation market is cashing-in on these trends too, as enterprises look to outsource their datacentre requirements to the colocation community and transform their IT environments in response to the pandemic.

However, meeting this demand has not been without its challenges during the pandemic, as operators have struggled with supply chain issues, which have had a knock-on impact on the pace of datacentre buildouts in certain markets.

To this point, CBRE said the amount of new colocation capacity (173MW) that came online during 2020 in Frankfurt, London, Amsterdam and Paris (Flap) was lower than the 234MW the company predicted at the start of last year. Take-up, however, was up slightly on CBRE’s pre-Covid predictions. The company initially predicted at the start of 2020 that take-up would hit 197MW last year, but it topped 201MW in the end.

The company predicts the FLAP market will see more than 415MW of new supply added over the course of 2021. This is almost 100MW more than in 2019, which is noted as being a record-breaking year for colocation supply.

Furthermore, CBRE forecasts that more than 370MW of take-up will occur across the FLAP market, of which 230MW has already been pre-let by clients in the enterprise and hyperscale markets.

“The market signed 440MW of new contracts in 2020 – more than half of these will be realised in future years,” said CBRE, in a statement.

Penny Madsen-Jones, director of Europe, Middle East and Africa (EMEA) datacentre research at CBRE, said the high amounts of pre-let colocation capacity within the FLAP market are indicative of how the pandemic has given enterprises and hyperscalers pause for thought about their future plans.

“It is remarkable that the datacentre market, which has faced supply challenges, has been able to meet continued high demand,” she said.

“Constraints have ultimately led more customers – in particular hyperscale customers – to carefully consider their datacentre needs for the years ahead, and this has led to high pre-let activity. This provides CBRE with amazing insight into take-up for the years ahead.”

Cloud availability zones

She continued: “Much of the pre-let activity we have seen has been focused around existing cloud availability zones. We will see even more such activity as the build-to-suit market (which builds specifically to hyperscale specifications) grows.”

CBRE’s predictions coincide with the publication of its fourth quarter colocation market tracker report, which monitors the supply and take-up trends of datacentre capacity within the FLAP markets. Its data shows that 95MW of new colocation supply came online during Q4, and 70MW of take-up occurred, with the majority of this activity occurring in the London and Frankfurt markets.

Such is the demand for colocation capacity in established markets like Frankfurt, CBRE also used the report to signpost Berlin as a possible overflow site for operators to build new datacentres in.

“With Frankfurt’s supply remaining in high demand, and the market experiencing land and power constraints, hyperscalers have turned their attention to the city in Germany’s north east. Berlin is now being positioned as a location for new availability zones,” the CBRE report stated.

“The city is perfectly located geographically for cloud providers. Being 200km from Frankfurt means it is far enough away to offer a German alternative to Frankfurt in terms of availability zones. The market also offers access to Eastern Europe and is already an important connectivity hub.”

Even so, Madsen-Jones said it is expected that the existing hubs will continue to see high demand for colocation capacity for some years to come, despite the prospect of new second-tier hubs emerging.

“Many markets, however, will continue to experience challenges site access and power in where cloud availability zones exist, and we expect, as a result, to see new availability zones formed across existing markets in coming years, leading to continued high demand,” she said.

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