Are data centres worth a £400M investment?
The increasing pace of digital transformation is forcing many organisations to fundamentally change how they operate and offer value to their customers. Remaining competitive and relevant as today’s world becomes increasingly digital is key to any company’s long-term survival, as is the need to be able to adapt to changing customer expectations. Whilst historically, all computing and data storage was handled on-premises, the explosion in IoT technology has resulted in significantly more data being produced prompting a migration away from on-premises to cloud-based storage infrastructures – the data centre. Private cloud and private 5G networks are now a top priority for many Fortune 500 companies.
The Evolving Data Centre
The emphasis on using cloud to enable innovation, support the continued growth of IoT technologies and long-term hybrid working models is driving the need for more superior data storage and transmission capabilities. To meet the demands data centres are evolving, with edge and hyper scale facilities adapting their designs, power infrastructure and cooling requirements to handle the vast amounts of data now being produced. As network infrastructure specialists to the data centre industry, Technology Powered Services (TPS) has seen first-hand how the growth in digital technology is shaping the sector. The first six months of 2023 in particular, have seen a significant rise in industry spend, with a number of data centre clients scheduling infrastructure upgrades and refurbishment works to handle the volume of current and future data needs. This recent development appears to fall in line with the latest industry reports, which highlight just how seriously our data centre operators are preparing for the next generation of technology.
Levels of Data Centre Investment
According to the Global Commercial Real Estates Service (CBRE), 2023 will see a greater level of investment afforded into the development of both exclusive edge and hyper scale data centres than last year. In its latest report, the 2023 Investment Sentiment Survey, the organisation announced that it expects 89% of investors in the data centre industry to increase their spending following a relatively slow 2022. Of those that responded to the CBRE survey, 85% stated they have allocated a figure in the region of £75 million for the data centre sector, with 32% claiming to have allocated a figure equating to just under £400 million. It would appear the majority of the more sizable budget
allocations are being directed towards the larger hyper scale data centres. But what specifically is it that is driving such a substantial level of investment? Without a doubt IoT technology is playing its part however it is the anticipated needs of Artificial Intelligence (AI) applications and workloads that are having the greatest impact. Whilst many of the Fortune 500 are keeping their AI initiatives under wraps, it is acknowledged the vast amounts of data generated through AI will transform the way it is stored, processed, managed and transferred. Each AI application requires an immense amount of computing power to support its two machine learning functions; AI training and AI inference. Aside from their extensive storage requirements, the applications also generally demand up to three times more bandwidth than a traditional computing network. This is due to the input and output functions of the apps which require that data can be swiftly retrieved to produce ‘real-time’ results. Whilst still in the early days of commercial adoption, the more businesses that create customised AI deployments, the more data centre space and power these platforms will require.
Economic Challenges Within The Global Data Centre Market
Whilst the global data centre market is projected to reach 235 billion euros by 2026, the challenging global economy is certainly creating an element of tension within the sector. War, the aftermath of the pandemic, inflation, rising interest rates and the threat of recession are conditions that are adversely affecting all industries and the data centre market is no exception. For investors, this economic climate, together with higher costs, new capacity challenges and increased sustainability regulations surrounding energy and water consumption, will all impact how the sector grows and the areas in which it does. Countries with cheaper land, greater power supplies and favourable tax incentives likely to prove the most desirable areas for new- build hyperscale facilities. The limitations and challenges faced by these larger players, together with the need for faster deployment capacity, will however ensure investment also continues within edge computing. The continued roll-out of 5G technologies; such as virtual and augmented reality, precision farming, remote healthcare and digitised logistics driving the growth for local and regional data centres that are more suitable for supporting real-time analytics.
What for the Future?
Whilst the migration to external cloud-based services has transferred capital costs to data centre operators and ultimately enhanced bottom-line profits for the business in the short-term, these margins are highly likely to reduce in future years. Data centre operational costs are now at an all-time high due to escalating energy overheads and the charges for materials. Operators are being forced to pass some of these back to the consumer, impacting annual pricing levels across the board. Despite the undoubted rise in rates, our insatiable desire for technology will drive business demand, ensuring our data centres remain a pivotal, and critical, part of the overall global economy. The adoption of AI, remote working, remote learning, digitised 5G technology, social media and video streaming all contributing to the industry’s continuing growth.
Regardless of the economic challenges faced by all investors, operators and users, our data centres are, and will remain, at the very foundation of world operations indicating a substantial level of ongoing investment way beyond 2023.
TPS (Technology Powered Services) has an industry wide reputation for designing and delivering exceptional infrastructure, network and connectivity solutions for the data centre industry.
The company also offers a comprehensive range of Break-Fix, Testing and Maintenance services, including reactive 24/7 Engineer call out with guaranteed response times.
