London continues to lead European data centre market

Uptake healthier, spending outlook positive - and high vacancy rates could help customers negotiate bargain prices.

The forecast for UK data centre market is mixed, but with sunny spots ahead, according to the most recent European Datacentre Market View report from corporate real estate specialists CBRE.

In the second quarter of this year, London - Europe's largest data centre market - accounted for 50 percent of newly contracted space, managing to buck the slowdown seen across the European market as a whole.

At the same time, however, the UK capital accounted for the highest level of vacancy rates among major European markets, with current availability in London standing at 18.6 percent, against a European average of 15.3 percent.

The report's authors maintain a positive outlook for the UK. New interest in taking services in London's data centres has been brisk from the start of the year, they say, and there's evidence that corporate customers may be preparing for better times ahead.

At the same time, they remain cautious for now, leading to "longer periods of contractual negotiation and internal deliberation" before they sign contracts.

"The good news in London for the second quarter is that underlying economic conditions have continued to show improvement. An optimistic view is that a corner has been turned and business confidence will remain on a stable path, consequently encouraging new investment," the report states.

In response to that brighter outlook, London's data centre providers have continued to bring new space to market, in anticipation of future increases in demand. London's newest operator, Volta, for example, has recently opened the first phase of its Great Sutton Street facility, close to Shoreditch and Silicon Roundabout, with the initial phase bringing to market 1.2MW.

High vacancy rates and ambitious expansion, however, are leading to pricing pressure - bad news for providers, but good news for customers looking to grab a bargain and willing to invest now.

Looking ahead, there were fewer reports of large amounts of technical real estate space coming to the market elsewhere in the UK, the most significant exception in the second quarter being Portal Data Centres, which announced the start of construction of a 2,800 square metre facility in Aston, near Birmingham.

"However, there continues to be activity on a smaller scale among data centre solution companies, such as LDEX, who completed a 325 square metre expansion of its facility in North West London; Everest Data Centres, who completed a data hall at their new Reading facility; and Node 4, who finished a 200-rack expansion at its Northampton data centre," says the report.

IT providers themselves, meanwhile, continue to play a leading role in the take-up of data centre infrastructure, as customers increasingly feel comfortable with procuring cloud services from third parties, rather than hosting their own systems in-house. Salesforce.com, for example, signed an agreement with NTT Europe to establish a European data centre to serve EMEA-based customers in the UK, scheduled for completion in 2014. Oracle, too, reported the opening of a new data centre in the Thames Valley, specifically to support the company's work for UK government bodies, while Sungard Availability Services announced it had signed a 5-year contract with Serco Group for its UK IT infrastructure needs.

Across the European market as a whole, however, the picture was far more gloomy: uptake in the first half of 2013 was down 31 percent year-on-year. Total third-party demand for data data centre facilities in the six months to the end of June was 15,095 square metres or 21.7 megawatts (MW), a third less than the demand seen in the same period of 2012.

Despite the slowdown in demand, the report's authors maintain a positive outlook for the industry, saying that an improvement in the economic outlook across the Eurozone is helped to restore business confidence. This could lead to an uplift in investment in the second half of the year.

"Data centre operators are beginning to see the result of a more optimistic corporate view with a rise in new enquiries," they write. "Renewed interest from corporate occupiers, combined with enquiries from technology service providers is providing a promising outlook for data centre operators."

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