financial services hubs colocation market update · real-estate investors (e.g. reits) and family...

Integrity.Excellence.Results.

Financial Services HubsColocation Market UpdateNew York | London | Singapore

January 2016

Contents

3 Key Facts4 New York6 Greater London8 Singapore10 Outlook

10

Key Facts

• Data Centre construction continues to be a growth area. Solid returns have attracted large-scale investment into the sector from tech firms, Telco’s, real-estate investors (e.g. REITs) and family offices;

• Developed markets are now well supplied by colocation specialists who maintain an average occupancy 75% for full operational capacity. There is good availability of shell and core that can be developed quickly (circa 6 months);

•• The use of colocation providers is accelerating across all industry verticals. Globalisation of the supply base will enable customers to use global capacity pools giving flexibility to shift consumption across locations;

• There has been extensive M&A activity in this space with major operator-owners such as NTT, DRT and Equinix making significant acquisitions in the last 12 months. More consolidation is expected in the near future;

•• Financial Services continues to be a key driver for colocation business in the New York, London and Singapore metro areas. Total supply across these hubs is likely to approach 1.5 GW in 2017.

Financial Services Hubs Colocation Market3

Figure 1 - Data Centre Capacity (MW)

NY / LN / SG

>1450 MWby 2017

1 New York Metro

1.1 Providers

1.2 Supply

New York and New Jersey are well supplied by more than 40 providers, operating almost 100 facilities.

New York and New Jersey have seen continued – but measured – investment in colocation data centres. This reflects reliance on financial services (est. at 60% of all demand) and the general slowing of IT investment since 2008. In the last 12 months provider investment has been directed at consolidation (e.g. Digital Realty’s acquisition of Telx, QTS’s acquisition of Carpathia, and CyrusOne’s acquisition of Cervalis) to leverage economies of scale and to improve connectivity and cloud offerings.

Investment in new supply is slowing in the area. There is increased demand for services in lower cost locations and facilities (see Figure 3). Most activity is concentrated in New Jersey with Newark, Secaucus, Piscataway and Weehawken being particularly popular. Development is now being seen in areas such as Orangeburg, NY whewhere the local authorities are offering tax breaks and incentives to encourage investment and recreate the success seen in New Jersey.

By 2017 the total supply will exceed 480MW in the New Jersey area alone.


Figure 3 - New Jersey Capacity (MW)

Figure 2 - New York Metro Data Centres

> 480 MWby 2017

1.3 Demand

1.4 Pricing

Both retail and wholesale providers report that the market is ‘steady’, with demand being generated by mid-tier firms, or large firms consolidating small/medium on-premise equipment rooms. Consequently, there are fewer ‘large’ (c. 1MW) deals taking place than in previous years. Citihub estimates that new demand in 2015 was approximately 7MW.

AshbuAshburn (VA) is an increasingly important east coast location for operators on the basis of colocation, energy costs, “green” credentials, connectivity options and lower-latency access to core cloud nodes. For these reasons the uptake of capacity in Ashburn is being driven by large wholesale/turnkey deals from online services firms (in 2015 for example: Facebook 7MW, AWS 11MW and InfoMart 6MW). Similarly, we have seen increased interest in Ashburn from financial services firms that seek lower cost locations as well as proximity to cloud services.

ThisThis is reflected by the news that DuPont Fabros Technology (DFT) have decided to exit the New Jersey market - which they see as predominantly retail based - and focus their attention on growing wholesale markets in North Virginia and elsewhere.

Therefore, demand from financial services verticals in New York/New Jersey is likely to be limited for the foreseeable future. A small number of large deals are likely to be transacted in 2016-2017 but these will be highly competitive on price.

Wholesale pricing (>250KW) has been falling slowly but steadily for the last 3 years. Expect good deals for well-informed tenants, particularly in the New Jersey area.

Figure 4 - New Jersey Wholesale Pricing (USD)


2 Greater London

2.1 Overview

2.2 Supply

There was a steady supply of new capacity during 2015. Established players continued to expand and lease-up, like DRT and Equinix, who expanded their Chessington and Slough facilities respectively, whilst new comer Volta launched a 6MW site in Clerkenwell.

WWe predict continued investment in 2016 with Telehouse planning to open their huge North Two extension in Q1, the planned redevelopment of the 450,000 sq ft Kao Data campus in Harlow due to complete in Q3, as well as significant announcements from Equinix.

By 2017 the total supply will exceed 460 MW.


Figure 6 - London Capacity (MW)

Figure 5 – London and Home Counties Data Centres

> 460 MWby 2017

The Docklands remains a hot spot for data centre activity driven by financial services, Telcos and Internet Exchanges. However, interest for Financial Services firms extends beyond inner London to the home counties where Disaster Recovery sites are often located and where there are an increasing number of trading venues and liquidity pools (e.g. NYSE Euronext).

There are an estimated 85 facilities operated by 50 providers across Greater London the surrounding area.

2.3 Demand

2.4 Pricing

In general, both the retail and wholesale markets progressed well through 2015 with an estimated 20MW of take-up. It is our observation that demand is being driven by (a) large-scale reconfiguration of real-estate strategy (b) cloud and IT services demand.

EquinixEquinix’s recent $3.8 billion acquisition of Telecity is expected to have a big impact on the market (see Equinix and Telecity - What does it mean to end user firms?). Firstly, it represents a significant reduction in supplier choice, and secondly challenges InterXion who we now expect to begin differentiating on price. Wholesale and retail providers have expressed interest in capacity that can be delivered to the market quickly to opportunistically deliver bespoke client requirements.

AA significant risk for data centre and cloud firms is the planned EU Membership Referendum in 2017. The UK’s future in Europe and impact that this might have on where global firms deploy infrastructure is an increasingly important consideration in the development of hosting/location strategies in all sectors.

Wholesale pricing in London and the Home Counties has remained relatively constant over the last 3 years. Citihub does not expect to see this trend change for the foreseeable future, with any economies of scale or other efficiencies operators find being offset by the ever increasing cost of real estate in the region. However, deals will exist for anyone able to leverage available capacity at some of the new entrants or competition between the two market leaders.

Figure 7 - London Wholesale Pricing (USD)


3 Singapore

3.1 Overview

3.2 Supply


Figure 9 - Singapore Capacity (MW)

Figure 8 – Singapore Data Centres

Since 2008 Singapore has seen explosive growth in colocation data centre investment. This has been driven by three factors:

• Higher than average returns against other asset classes and more specifically other types of property investment; • Dynamic growth in demand from online services companies, content providers and Telco’s; • Consolidation of Singapore’s position as both a regional hub for Asia but also as a sub-regional centre for S.E. Asia.

2015 saw new capacity coming online including Equinix’s flagship site for Asia Pacific, SG3, which is ultimately designed to deliver around 20MW of IT load. Established regional players Keppel, 1-Net and Singtel and global leader Global Switch all plan to bring new capacity to market in the next 12-18 months.

DuringDuring Q1.2014 Citihub predicted that total supply in Singapore by 2017 would reach 260MW by 2017 (see http://www.citihub.com/insights/whitepapers/singapoinsights/whitepapers/singapore_data_centre_market/). However, given the continued investment in new facilities outlined above we are now adjusting our forecast that total supply is likely to exceed 400MW by the end of 2017.

> 400 MWby 2017

3.3 Demand

3.4 Pricing

Citihub research completed during Q1.2015 identified a total 38MW of Singapore related data centre change projects in the 2014-2015 period (two full years) with an estimated 24.7MW (65%) planned for outsourced Data Centre locations and with the balance being satisfied by new or upgraded on premise solutions.

Citihub forecasts that the market will be oversupplied by Q4.2017 and that vacant space will be a drag on provider P&L’s until 2020.

We observe a steady reduction in colocation pricing over the last 18 months and predict that prices will continue to fall before levelling out with other financial centres during 2017/2018.

Figure 10 - Singapore Wholesale Pricing (USD)


4 Outlook

• Consolidation will continue to be a theme in the next 24 months as it has been for the previous;

• Large multi-national corporations and Telco’s are starting to realise they can’t compete on pure colocation and will look to divest assets in this area in order to focus on core business, for example Verizon announcing the auction of 48 data centres globally;

•• As Financial Services firms take their first tentative steps towards the use of public cloud they will need to start considering the implications for capacity at their own data centres;

•• The market trend is towards N+1 or N+2 designs supplemented by mature and proactive operational procedures. This greatly reduces both the Capex and Opex required for owners and operators when considering new facilities (Citihub estimates that the major REITs and DC operators are able to build their facilities 2-3x cheaper than Financial Services firms have historically achieved);

•• However, operational integrity will remain a significant factor in Data Centre choice for financial services firms with many still demanding Tier/Type III+/IV implementations.


Contact Us

Authors

EMEA

Ian O’[email protected]

1 Canada SquareLondon E14 5AB+44 207 536 5801

Bellerivestrasse 201Bellerivestrasse 2018008 Zurich

+41 44 562 7101

Jim Oulton, Associate PartnerIan O’Hara, Partner

North America

Keith [email protected]

757 3rd Avenue, 20th FloorNew York NY 10017+1 212 878 8840

The Dineen BuildingThe Dineen Building140 Yonge Street, Suite 200Toronto, Ontario, M5C 1X6

+1 437 886 8390

Asia Pacific

Steve [email protected]

137 Market StreetLevel 5, Office 505Singapore 048943+65 3152 2777+65 3152 2777

20th Floor, 1 IFCHong Kong

+852 8108 2777

11

financial services hubs colocation market update · real-estate investors (e.g. reits) and family...

Documents