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Data centres are coming of age

According to Cisco, data traffic worldwide will hit 50,000 gigabytes per second in 2019 - unimaginable when compared with the 100 gigabytes consumed per day in 1992. 

This surge in data consumption is partly linked to the rising trend for cloud-based services and, while data centres are needed to house the technology required to power them, only standard warehouse space is required –albeit fitted out to a very high level.

However, the UK’s industrial market is stock-starved, with demand outstripping supply and employment land scarce. Competing demands on the little space available are only set to increase
– especially if data centres join the growing list of occupiers vying for space in prime locations.
These centres need to be located around the outskirts of large conurbations – land that is already highly sought after by several other industrial and non-industrial use classes.
Data centres are also notoriously power-hungry. One data centre housed in a big-box unit requires the same amount of energy as a small town. This makes electricity their single greatest operating expenditure after the eye-watering fit-out costs needed to ensure that the buildings are temperature controlled.

It is hard to imagine a near-future scenario where developers and investors choose purpose-built warehouses for data centres. Logistics developers naturally build with logistics developments in mind. And while they do not usually discriminate against alternative uses, the current competition for space in the market doesn’t make data centres an obvious choice – especially when factoring in their change ofuse, power, fit-out and geographical requirements.

With Brexit on the horizon and some traditional occupiers putting immediate plans on pause, the market is at an interesting crossroads. Incredible buoyancy in the market has seen a rush of speculative development over the past five years as investors and developers have made hay while the sun shines. But, if change is coming, shrewd investors and developers might be wise to start considering data centres more carefully as part of a wider occupier mix and a more balanced portfolio.

Data centres offer longer-term leases – 25 years typically – making it a very reliable income investment class. Also, as the potential rise of automated, driverless vehicles is likely to make it less vital for certain occupiers to be located in last-mile logistics zones of major towns and cities, space might start to be freed up for alternative use classes.

A reliable power source is already essential for warehouse schemes, but if it is given even greater consideration at their inception stages, it will leave the door open for data centre use in the future – even if this is a medium-to long-term consideration, as opposed to a short-term plan.

We rely on data throughout our everyday lives and this is only set to increase as more and more applications move online and into the cloud. While the UK market supports this asset class from an investment perspective, its infrastructure and supply cannot currently match this appetite.
 
However, there could be a time in the not-too-distant future when data centres become a highly sought-after occupier type. In this situation, those who have planned ahead will be set to take full advantage of this emerging trend.
 
Jody Smith
Partner

 

 
 

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