Data Centre Dot Com Bubble Burst In 2013

Posted by Philip Bindley

So where has this wave of demand forecast by renowned industry experts and consultants gone?

Prices fall 75%, highest annual rise in data centre supply on record, is the UK data centre bubble about to burst?!

The UK data centre market has been hyped up hugely. Build and customers will come has been the motto preached by experts and consultants alike. Investment has poured into the sector and new facilities have rapidly sprung up to meet demand from Cloud companies, BIG data, and to accommodate the pent up demand of corporate users who have held off on IT spend due to the Euro credit crisis.

However, before we all go out and invest our savings and pensions in data centres;

International Data Centre real estate agent CBRE, publish a quarterly review on the colocation market. The 2012 year review published in March 2013, led with the headline “Cloud drives European data centre demand as colocation take up rises 12%”. Again a great message, until we read further into the report that 2012 also saw the highest annual rise in data centre supply on record!

The idea that there could be any capacity challenges to meet demand has been addressed many times over, now standing at multiples above recently witnessed demand.

So where has this wave of demand forecast by renowned industry experts and consultants gone?

In the main, it has not gone. Business has remained steady for established, proven providers who offer tangible business benefits to its tenants. The presence of internet exchanges, network diversity or specific high levels of security all adds strategic benefits to colocation growth in a certain facility. Established listed and private companies such as Telicity, Interxion, Equinix, The Bunker, and Digital Realty have all shown reassuringly consistent strong results and new levels of new business.

However for new entrants without the benefit of either being proven specialists, big or unique, winning new business is a far more difficult challenge, particularly with the record high levels of new stock onto the market.

Many of the new entrants are heavily funded by serious investment houses, all of whom expect growth and returns within agreed timescales. Pressure builds on the back of weak uptake and high profile companies failing such as 2e2.

Data Centres are expensive to run; therefore to provide the required returns many only have two options, sell or make cuts to price and service.

Retail rack prices in the UK’s London Docklands back in 2010 were as high as £600 per kW, in response to market pressures some of the smaller or newer providers are now approaching fire sale levels, dropping prices by as much as 75%!

What we can’t tell is what other cuts are being made under the surface to critical services.  However many of those involved in the industry back when the dot com bubble burst the first time around; remember with trepidation the implications of short term cuts to electrical and mechanical maintenance which often resulted in dramatic outages and failures in subsequent months or years.

I guess, much like when the dot com bubble burst the first time around, we will have to wait and see what the full fallout will be.

Until that point, builders, buyers and investors beware. All that glitters may not be gold!