Data centre space pricing to rise

A new report by Tier1 Research has found that demand in the global multi-tenant data centre market is up 14 percent on a global basis in the last 12 months, while supply is up only six percent.

Several factors are said to be contributing to this demand, including the extremely high cost of data centre construction, specialised skill sets, aging of existing enterprise data centres and the primacy of the Internet as a vehicle for service and application delivery.

Australian data centre construction has been booming in recent months, with Fujitsu’s new centre in Sydney and a promised facility in Perth ; Galileo Connect’s local and regional plans ; and the Polaris development near Brisbane .

The report authors speculate that while demand growth ‘may be slightly depressed in 2009 due to larger macroeconomic factors – particularly in specific markets – demand is expected to rebound strongly as the economy recovers, surpassing current levels significantly’.

The supply picture, on the other hand, is significantly different. The dearth of available capital in the form of commercial mortgage debt has severely affected several vectors of datacentre construction, according to T1R.

Speculative data centre developers that constituted a vital input into centre supply are now largely unable to build due to the extremely high bar set by banks for securing debt.

In addition, Real Estate Investment Trusts (REITs) have had several of their normative methods of raising funds disappear.

Colocation and managed hosting providers are, for the most part, cash-flow positive and are able to self-fund some expansions.

However, even the most successful of these firms are having to scale back planned expansions due to the high cost of construction, the firm said.

"The recovery of the economy from the current slowdown will likely result in a temporary exacerbation of price increases, as demand will grow significantly faster than supply during the first 12 months of a recovery,” said Jeff Paschke, senior analyst at T1R and lead author of the report.

“This is due to the data centre construction cycle, which varies from nine months (for a phased expansion) to 18 months (for a greenfield build).

“Demand, of course, has no built-in delay, which will likely cause the sort of cross-market price increases seen during 2005.”

Paschke added: “It should be noted that in addition to the normal increase in IT spending associated with a recovery, there has been considerable speculation concerning Internet traffic increases in the 2011-2012 time frame, which will have a complementary impact on data centre demand.”

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