Apto perspectives: 10 trends (and tips) shaping the hyperscale data centre space in 2024
According to FDI Intelligence, the European data centre market is set to experience its “biggest growth phase”, while DataCentre Magazine recently reported that the hyperscale data centre market will grow at a compound annual growth rate (CAGR) of 27% between 2021 and 2028.
There’s no doubt that the hyperscale data centre landscape is evolving in response to various market dynamics, technological advancements, regulatory shifts and economic factors. The Apto leadership team highlights key trends expected to shape the industry in 2024, influencing cloud service provider strategies and the growth of hyperscale data centres.
Market Dynamics and Expansion Strategies:
- Expansion beyond tier-1 metros: The growth in traditional metros is slowing due to capacity limitations or moratoriums. This is driving the exploration of tier-2 markets, which is expected to ramp-up into 2024 and display exponential growth that is likely to supersede traditional tier-1 markets.
TIP Act quickly to diversify portfolio: Vigilant market monitoring and timely decision-making are critical in capturing these opportunities to secure optimal sites before constraints arise.
- Rapid growth in newer markets: While identifying locations in these rapidly growing tier-2 markets is crucial, some metros may face potential constraints as they swifty transition from phase 0 to phase 3. This demands fast action to get ahead of any potential limitations.
TIP Prioritise flexibility and scale: Focus on building scalable and adaptable infrastructure to meet the immediate hyperscale needs, and that allow quick expansion and customisation based on evolving market demands.
Chris Baxter, Chief Revenue Officer: “The industry’s remarkable growth trajectory appears set to continue, while prominent locations, like London and Frankfurt, face market saturation. Taking Frankfurt as an example, there is a gigawatt of capacity predicted to be online here in 2024 and the vacancy rate is less than 5%. Hyperscalers and providers will both need to be flexible around locations, particularly thinking about the growth of AI and the larger demands of machine learning. They need to be able to act quickly and take advantage of areas which have abundant green power and suitable land.”
Technology and Infrastructure:
- Artificial intelligence/machine learning evolution: Demand for data processing and storage continues to surge as AI/ML becomes the most significant capacity driver. Designing infrastructure capable of handling complex AI/ML workloads will directly impact expansion strategies.
TIP Invest in AI/ML ready infrastructure: Thorough and regular assessment of infrastructure requirements, invest in well-placed infrastructure – edge computing with multiple transportation methods – capable of accommodating evolving demands.
- Power grid and generation challenges: The surge in data centre demand is straining power grids, highlighting the need for sustainable power generation and energy-efficient infrastructure. Actively exploring renewable energy sources will continue to be a dominant theme.
TIP Prioritise sustainability: Prioritise sites with sustainable power generation options. Embrace renewable energy sources and energy-efficient infrastructure to address environmental concerns and future-proof operations.
- Supply chain and pricing impact: The interplay of supply chains, power supply and land profoundly impact data centre viability and profitability, particularly in tier-1 markets. Fluctuations in pricing due to increased demand, supply chain constraints or geopolitical instability will need to be very carefully analysed and monitored.
TIP Diversify sourcing: Cloud service providers should diversify their supply chains to mitigate risks. Monitor and adapt to pricing fluctuations, exploring alternative sourcing options for critical resources.
Mark Dolan, Chief Strategy and Acquisitions Officer: “The market, which saw significant headwinds in major European hubs in 2023, faces different pressures in 2024. The evolution of cloud demands has swiftly transitioned, brought by the emergence of AI and ML workloads. Now, we witness an increased willingness from hyperscalers to commit to larger-scale market entries, favouring entire buildings or built-to-suit solutions over colocation facilities.”
Regulatory and Technological Shifts:
- Sustainability mandates: Stricter sustainability regulations favour those building now. Companies that proactively adhere to these new norms can expect to gain a competitive edge in the market – it’s not just a regulatory necessity but a strategic opportunity.
TIP Adapt for compliance: By integrating sustainable technologies and robust reporting mechanisms, businesses can align their operations with these mandates, fostering a more responsible image while positioning themselves advantageously in the market.
- Regulation around AI and data usage: Stringent regulations around AI and data usage are significantly influencing the selection of sites for these operations. There is value in seeking regions with conducive regulatory environments for developing and deploying AI technologies.
TIP Select regulatory-friendly locations: By prioritising locations with supportive policies and data usage regulations, cloud service providers can ensure smooth operations and compliance, maximising the potential for innovation and growth within the parameters of legal frameworks.
Roger Gough, Chief Development Officer: “2024 marks a turning point as sustainability shifts from industry norms to regulatory mandates. Legacy data centres may face hurdles in meeting the standards, favouring new, energy-efficient designs. Additionally, as the industry moves towards building 200-megawatt campuses, procuring the required equipment could pose a challenge. Manufacturers will need to ramp-up production, while framework agreements aim to secure inventory upfront.”
Economic and Financial Landscape:
- Increased investor interest: The surge in investor interest signifies growing opportunities and industry attractiveness. Experienced companies like Apto leverage this interest for strategic partnerships and funding expansion plans.
TIP Leverage partnerships: Hyperscale data centre customers should leverage investor interest to establish strategic partnerships. Collaborate with investors to secure funding and strengthen expansion plans.
- Financial trends and interest rates: Despite economic uncertainties, the data centre industry has showcased resilience across economic cycles. However, fluctuations in interest rates and has directly impacted investment decision, this is looking to stabilise over the next year.
TIP Assess long-term viability: Consider the impact of interest rates on investment decisions and evaluate expansion plans based on long-term financial viability.
David West, Chief Financial Officer: “The inflation and interest rate fluctuations of recent years has driven shifts in the data centre industry. While inflation stabilises and interest rates have started to plateau, a return to ultra-low rates is unlikely in the near term. There has been varied pricing across operators depending on funding cycles and supply chain influences, however I expect pricing to stabilise at elevated levels as the lag from these economic factors is felt across the industry.”
- Skills gap challenges: With the rapid evolution of technology and the increasing complexity of data centre operations, the scarcity of skilled professionals in the data centre industry continues. Addressing the skills gap and nurturing a skilled workforce is essential for ensuring sustainable growth.
TIP Invest in talent development: The industry needs to collectively and collaboratively work together to invest in talent development programs and attract, train and retain the next generation workforce.
Russell Poole, Chief Executive Officer: “Attracting and nurturing new talent isn’t just an investment; it’s the very foundation of future industry growth. We’re committed to cultivating a diverse pool of skilled professionals through programs like our graduate initiative, ensuring a sustainable pipeline of expertise across various domains, crucial for advancing the data centre industry.”
As 2024 unfolds, these trends will shape the strategies and decisions of cloud service providers and hyperscale data centre operators. Navigating these influences requires adaptability and strategic foresight to thrive in the dynamic and ever-evolving data centre landscape.
Stay tuned for further insights as the industry continues to unfold in response to these multifaceted trends.
