During our discussion, we asked about the specific markets that are growing in the European region, the ways in which large global trends and issues are impacting that growth and how limited resources \u2013 such as land, power and skilled labor \u2013 are affecting the data center industry across the region.<\/p>\n
Data Centers Today (DCT): <\/strong>Looking back at 12-18 months, what did EMEA data center growth and demand look like?<\/em> Phil Shih: <\/strong>In 2022, data center demand across all categories \u2013 hyperscale, wholesale and retail \u2013 was steady and healthy. But there was a little bit of a drop-off in certain segments and certain geographies. For example, we saw demand drop off in places like China, which had a very different approach to handling the ongoing COVID pandemic, which may have contributed to that. But that\u2019s a very extreme example.<\/p>\n In the rest of the more developed countries across North America, Western Europe and the Asia-Pacific regions, demand stayed on a similar trajectory. However, there were bumps in the road early in the year with the outbreak of war in Europe, which affected energy prices and other underlying costs.<\/p>\n We saw a macroeconomic shift as a result of those events and that impacted enterprise decision-making. That contributed to a slight downward shift in the trajectory for the hyperscale cloud category since organizations decided to either dial down, optimize or delay projects.<\/p>\n Despite that, I would still describe [data center demand and growth] as steady, healthy, but somewhat slowing. I understand that sounds contradictory, but that\u2019s the demand profile that has persisted throughout the year. But I anticipate that particular demand profile will persist throughout 2023.<\/p>\n That being said, despite an apparent drop-off in some markets, we\u2019re still anticipating more than 20 percent year-over-year growth. But this was an industry with a growth rate of more than 30 percent year-over-year not long ago. Yet the public cloud is still a $100 billion industry that will continue to grow and create demand in the data center industry.<\/p>\n DCT: <\/strong>How did these trends play out in the European region? <\/em><\/p>\n We\u2019re seeing robust growth in Frankfurt and London. However, [growth in] Paris has been slightly more muted than those markets. In markets like Amsterdam and Dublin, we’ve seen a real slowdown over the past couple of years because of [data center construction] moratoriums that have been put in place because of power issues. In those markets, the local municipalities want to limit the spread of data centers for various reasons, one of which is the perceived high energy consumption.<\/p>\n But then we can look to the likes of Madrid. This is a very immature data center market compared to the others, but it\u2019s growing at an absolutely phenomenal rate. That growth in Madrid was driven by construction projects spearheaded by cloud providers that were all announced around the same time. Much of those projects were spurred by new subsea cables that are improving connectivity to the region.<\/p>\n There are also some other really interesting markets bubbling up that have potential. Athens is a particularly interesting one. There was virtually no data center activity there for years, and then Microsoft announced a cloud region. However, it\u2019s still yet to be determined how quickly and by how much the local colocation market will grow.<\/p>\n DCT: <\/strong>One of the largest stories of 2022 had to be the war in Ukraine. Has this conflict impacted EMEA data center demand, and if so, how? <\/em><\/p>\n Sacha Kavanagh: <\/strong>I don\u2019t see the war having any significant impact on data center demand except potentially in Russia because of international operators having to suspend operations and exit the country. If there has been an impact, it has been a result of the massive spike in energy prices that we\u2019ve seen across Europe.<\/p>\n Interestingly enough, this hike in energy prices could, in fact, spur further development. One of the reasons we think Madrid has so much potential is because that market has access to low-cost renewable energy, which is a great alternative as the rest of Europe tries to reduce its reliance on gas from Russia.<\/p>\n That being said, Germany has had the highest power costs in Europe for years, which hasn’t decreased demand for [data center space in] Frankfurt. And the even greater power prices we\u2019re seeing today haven\u2019t seemed to have an impact on demand there either.<\/p>\n Phil Shih: <\/strong>I think that a conflict like this just creates more variables in the entire decision-making process for hyperscalers and the colocation industry. It might not necessarily be apparent in terms of the market on a day-to-day, month-to-month basis, obviously, since demand is still there.<\/p>\n But you know that operators and public cloud platforms are factoring in what\u2019s happening and perhaps looking for alternative scenarios based on what they feel might happen. They\u2019re making decisions based on what they think might happen with pricing. They\u2019re making decisions with the consideration of what would happen if the conflict spilled over or impacted the stability of other neighboring geographies. For example, a company like AWS might be a little more reluctant to expand closer to that region.<\/p>\n If projections that this conflict will go on for a long time are correct, and I think it will in some ways, it will create a permanent set of new variables that factor into the calculus of where operators and their customers build data centers.<\/p>\n Sacha Kavanagh: <\/strong>Excellent point. And alongside what Phil just mentioned is the impact on other local geographies. When Russia first invaded, I was very curious about what impact \u2013 if any \u2013 that would have on the Warsaw data center market, which is obviously another market that\u2019s seen a lot of activity.<\/p>\n Surprisingly, it doesn\u2019t seem to have done anything that I’ve read or heard about. That leads me to think that the conflict hasn\u2019t resulted in operators and their customers pulling back from Warsaw as a possible destination.<\/p>\n I also want to explain that Ukraine was never a big data center market. It wasn\u2019t on anyone\u2019s road map. The tension and geographic proximity to Russia were probably factors.<\/p>\n DCT: <\/strong>What would you say are the largest challenges or roadblocks impacting EMEA data center growth and construction?<\/em><\/p>\n Phil Shih: <\/strong>I would say the biggest challenge is the limitation in land and power. Over time, the available space in major metro areas starts to get tapped out.<\/p>\n So, where do operators go when they can no longer build around a major metro area \u2013 a place where there are a lot of eyeballs and end users? This has given rise to overflow markets around the major metro areas. But, especially on the hyperscale side, we\u2019ve also seen them looking to serve multiple markets from an in-between location.<\/p>\n I think that\u2019s the biggest challenge, and we\u2019re already starting to see that in markets around the world. We\u2019re building more data centers and accumulating more data, but they\u2019re not building any more land.<\/p>\n Sacha Kavanagh: <\/strong>Land and power are certainly constraints. But I\u2019ll add one more, which is labor. More data centers are being built, and they\u2019re being built bigger. But they need to be operated. And what we\u2019re hearing quite a bit from companies is the lack of skilled labor in construction, facilities management and operation.<\/p>\n This is especially true in markets like Madrid, which is an immature data center market. There\u2019s not a talent pool large enough to fill all of the data centers that are coming. And that\u2019s potentially going to impact pricing if it pushes up wages.<\/p>\n
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Sacha Kavanagh: <\/strong>It\u2019s difficult to generalize because every market in the European region is different and impacted by different market forces, government regulations and other factors.<\/p>\n![\"\"](\"\/wp-content\/uploads\/2023\/04\/Europe-Flap-Markets.jpg\")
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\u201cThat being said, despite an apparent drop-off in some markets, we\u2019re still anticipating more than 20 percent year-over-year growth. But this was an industry with a growth rate of more than 30 percent year-over-year not long ago. Yet the public cloud is still a $100 billion industry that will continue to grow and create demand in the data center industry.\u201d
\n<\/strong><\/em>– Phil Shih, Structure Research<\/strong><\/em><\/h3>\n<\/blockquote>\n
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Ainsley Woods: <\/strong>We\u2019re seeing operators working together and with education providers to develop new courses and qualifications for the sector, and to encourage young people to join the industry.<\/p>\n