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European Data Center Trends
European Data Center Trends

By Rhett Gill · 11/23/2021

We recently got the chance to sit down once again with Peter Jones, Chief Development Officer and founder at Yondr, and get his thoughts on the European data center industry.

A Little Bit About Yondr and Pete

For those unfamiliar, Yondr is a privately owned network provisioning company that offers modular data center designs: MicroBloc, MetroBloc, and HyperBloc. On one end of the spectrum is hyperscale, in the 10s to 100s of megawatts range. On the other end of the spectrum, tailored small scale deployments that help people enter new markets. Sometimes the small scale deployments are in places that have no colocation presence whatsoever. Yondr’s presence spans over three continents, employing over 300 people and still hiring as quickly as possible.

Peter started off as an electrical engineer on the design side, before transitioning into delivery management for Digital Realty during their big EU expansion from 2009 to 2011. From 2011 to 2018 he was part of Google’s global infrastructure team, taking a year off in the middle to skipper a sailing yacht from the UK to New Zealand.

In 4Q of 2018, he started Yondr with Dave Newitt and Miles Redding. They predicted an unprecedented level of network growth by the turn of the decade… but had no idea how much the pandemic would accelerate that need at a global level. 2021 has been a transformational year, with Yondr’s headcount constantly on the rise, and client demands ramping up in both frequency and scope.

The EU Data Center Services Scene

We asked about some of the real time trends in the EU, having seen the vacancy rates in Europe’s major data centers drop from 11.4% down to 7.5% over the last eight quarters.

Peter noted that the drawdown in capacity was fated even before news of the pandemic started to spread. Additional capacity slowed down during the pandemic of course, and now there are either active or planned moratoriums on new builds in some of the five major markets. So, it’s not surprising that those numbers are coming down.

In the broader market, there’s been an influx of new money, and thus new startups. But with no real pedigree amongst the new companies and a limited number of good locations to invest the available money, caution is at an all time high. Everyone knows that the need for bandwidth is there, but the trend in the late 2010s of failing projects and under deliveries is a specter that hangs over the industry.

This is a temporary phenomenon in the EU. Eventually, the market will churn out winners and losers in the new industry startups, and those who execute successfully will be trusted with bigger investments and larger scale projects.

There’s an amazing level of persistence right now; an obsession that causes companies to stick with the big five regions and absorb every possible watt of power and cubic centimeter of space rather than expand into nearby suburbs. The level of tolerance for long lead times and high prices in these areas is at an absurd high. Sure, there are massive day one costs to break ground in a new place. But with prices skyrocketing in these major networking metros, something has to give eventually.

Clients in the EU are looking for big tranches (of both power and bandwidth) right now, either to consolidate their fragmented network hosting portfolio or to avoid fragmentation in the future. This is where some clients are tempted to push outward, away from the overpopulated metro areas… as long as they’re presented with a growth story they can really believe in.

Power Pricing and Availability in Europe

David asked for an update on the price of power in certain parts of the EU, and how that’s driving and shaping growth?

Peter said that all of the ‘easy’ sites are gone. That’s being reflected in both longer lead times and higher long term cost projections. But the energy sector’s price shocks in Europe centered around resources like natural gas, didn’t help matters at all.

The conversation shifted quickly to the renewables appetite within the sector. The logic is that if your fixed price power purchase agreement can be ‘normalized’, avoiding the turbulence of these market shocks, you can plan deep into the future without fear. One of the best ways for a provider to ensure that they can fulfill a fixed price agreement is to get a fixed rate agreement from a renewable provider. Then there’s no need to eat price hikes or to pass them on to clients.

Risk Appetite in New Global Markets

There’s been a push, particularly by Cloud providers, to establish footholds in markets that were traditionally considered too risky in the past: Parts of eastern Europe, the Middle East, less populated countries in Asia, and parts of South America.

The asks from these companies are largely the same. They want to get in cheap with a reasonable amount of capacity, minimize the risk as much as possible, and they don't want to make a mess of it. In exchange, they’ll accept the risk of being an early adopter.

These kinds of deployments are vastly different from those in established markets. Sometimes the clients are chasing the population centers rather than bandwidth and energy hubs. Other times they’re chasing their own satellite offices for effective edge deployments, or the mooring of an undersea cable.

So, the calculation as to whether or not to make a move in such regions has to be based on pre-let figures, which will largely come from a single client. After all, these are irreversible investments in concrete and infrastructure. Without the long term assurance of a significant portion of capacity being spoken for, these markets would simply be too big of a risk.

Yondr in the U.S.A.

On the opposite side of the coin, Yondr’s move into the U.S. was essentially a sure thing. Northern Virginia is well established, with plenty of players in the field already.

Normally, being the last player to enter the arena isn’t an attractive proposition. But a partnership presented itself. It represented so much capacity, north of 500 megawatts, that the downside of being ‘last in’ paled in comparison.

People can’t get enough in Virginia. They’re still seeking capacity, and nobody wants to move. With clients actively asking for more, it seemed like a good bet.

David pointed out that datacenterHawk is projecting multiple 20 and 30 megawatt projects in the region kicking off in 2022 alone. So, it looks like Northern Virginia will remain a growth hub for the foreseeable future.

Europe and Asia/Pacific Trend Predictions

Transaction volume and investment liquidity are on the rise in both Europe and the Asia/Pacific region, a trend that’s unlikely to reverse any time soon. The main prediction is that the paperwork and logistics side of things will be streamlined, leading to more readily available funds and shorter lead times. The competency level for these big deals will help the sector as a whole move with confidence when there’s a clear opportunity.

There’s got to be an alternative to Singapore, given their data center construction moratorium. India is a possibility. A third of Yondr’s activity in Asia will come out of India in 2022. They’re breaking ground for 60 megawatts in Mumbai, as an example.

In Europe, around a dozen small scale, careful moves to the east are in the works. That should establish quite a few footholds… or cautionary tales, depending.

2022 in the Middle East will see true markets reveal themselves. At some point, someone is going to have to make a big bet, and when they do others will follow. It will depend on risk appetite, but it’s likely to happen in the next year.

Unfortunately, from a statistical perspective, some of the riskier projects that have been underway since before the start of Covid will fail to deliver. These things have not gotten easier to build. Project management experience in the industry is already spread very thin. And there are immense supply chain challenges. It would be naive to think that all of the new players and new investors that have established themselves in the past couple of years are going to stick around.

Peter is also looking forward to seeing which of the buzzword small scale use cases will start to pan out in 2022. Edge is of course still popular, but its effectiveness is highly subjective and each use case fairly unique. As to the rest, ranging from 5G, to self-driving cars, to IoT, we’ll need to see how long those will take to establish significant footprints throughout the world.

For more information about what Yondr is doing in 2022 and beyond, check out their website.

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