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European Data Centre Market takes “wait and see” stance; outlook more positive for later part of 2011

According to Jones Lang LaSalle’s Sixth Data Centre Barometer

London, 18th May 2011 – The key stakeholders in Europe’s data centre industry remain cautiously optimistic for the future of the market according to Jones Lang LaSalle’s latest Data Centre Barometer (DCB) released today.  Set against ongoing economic uncertainty, a “wait and see” stance was prevalent amongst respondents to the firm’s sixth survey, with more positive expectations for the market either later this year or early 2012.
Mark Larard, Director in Jones Lang LaSalle’s Data Centre Advisory Group, said: “Our latest DCB survey was undertaken in March 2011 and reflects only a marginal change on sentiment identified in last autumn’s survey which had seen respondents adopting a more cautious attitude.  Respondents to this latest survey have remained cautious, with an overall attitude of “wait and see”, at least until the later part of 2011 or early 2012.”
For the first time since the start of Jones Lang LaSalle’s Data Centre Barometer surveys, sentiment from carrier, integrator and colocation respondents has run counter to that of corporate occupiers and developer/investors. This is the class who are closest to the outsourcing contracts, which have accounted for a significant amount of the demand for data centre space over the last few years.  They are more positive in their outlook, and are potentially seeing first hand, demand increasing whilst the supply diminishes.
Mark added: “It is evident that respondents to our sixth survey are closely monitoring the market; but are holding back and biding their time. The amount of technical space vacated year-on-year is negligible but wholesale take-up was 126,000 sq ft, marginally down on the previous year.  This could be a reflection on the lack of wholesale space currently available, but also in the increasing activity in the data centre retail sector. The indications are that the vast majority are holding on tight to their technical space (both in-house and third party held), and investing in this, as opposed to acquiring new stock. A degree of status quo remains within the data centre market, but the expectation is that as IT budgets loosen, technology refreshes become more pressing and businesses drive further implementations, this cannot remain the case for long.”
70% of respondents to the survey believed that the cost of occupying data centre space will increase over the remainder of the year, up from 55% in the previous survey.  Notably, corporate occupiers and real estate developers/investors have the strong views on this price rise.
Mark continued: “The perceived rise in costs is a reflection on the lack of availability and increasing technology costs.  Modular (or containerised) data centre solutions have become increasingly acceptable, with both COLT and Bladeroom having notable success. This market trend reflects the swing in sentiment by respondents in favour of this style of solution as the benefits of flexibility and speed to market that modular data centres bring are recognised. COLT has secured tenants for four modular data halls during the last six months, including three banks and Phoenix IT.”
According to Jones Lang LaSalle American data centre operators continue to express interest in acquiring sites and buildings in Europe, but with the exception of Cyrus One, none have actually acquired technical space direct.  For the second survey in a row, no one developer said that they would build out data centre space on purely speculative basis which could be a decision forced on them by finance partners, or self-administered.
Mark concluded: “Undoubtedly there are now more development sites in the market, with either power or planning, and with reasonably good cases for obtaining the other technical prerequisites. How many of these will see activity in the short to medium term remains to be seen as access to development financing remains challenging.  SEGRO’s Slough Trading Estate in the UK remains the exception, with pockets of power being made available, strong levels of connectivity, and a Simplified Planning Zone, the established track record gives this location a perception of being more readily deliverable.”
·  Jones Lang LaSalle's sixth Data Centre Barometer (DCB) comprises an independent market survey of the European data centre industry's key stakeholders, undertaken by iXConsulting the specialist data centre consultancy.  A copy of the report can be accessed here.
·  The survey, which was undertaken in March 2011, continues to provide a gauge of market sentiment amongst investors, developers, advisors, service providers and corporate users of data centre space across the Europe.  It provides an insight into the recent activity of its respondents, as well as providing an indication as to the likely direction of anticipated market activity over the forthcoming six and twelve month periods. Whilst the position of the barometer needle for each different class of participant is meant only to act as an indication of this group’s sentiment towards the current state of the market, it is the swing in these positions over time and relative to other groups which provides the most interesting information.