2018 is a record-breaking year for European colocation
Over £1bn was committed to colocation take-up in 2018
- London was responsible for 40% of take-up across the four largest markets
Spurred on by an increase in the dominance of cloud, the four largest European colocation markets of London, Frankfurt, Amsterdam and Paris (FLAP markets) reached a record high of 194MW for total annual take-up in 2018. The capital expenditure required to deliver the 194MW of take-up equates to £1.2 billion, according to new research from CBRE, the world's leading real estate advisor.
This level of take-up surpasses the previous record of 155MW set in 2016. CBRE analysis showed that cloud was responsible for 79% of all take-up in the four major markets during 2018, no sector has ever been so dominant. Frankfurt, London and Paris all recorded their best ever years. London’s take-up of 77MW is the best ever performance by a colocation market in Europe.
2018 saw an equivalent amount new supply as 191MW was brought online during 2018. This market stability meant that pricing for colocation capacity in the FLAP markets was again stable in 2018. We expect this to remain the case during 2019 as, even though we project that the aggregate vacancy rates will rise from 17% to 20%, the markets will remain in equilibrium.
The year also saw the first wave of new US entrants to Europe, which included CyrusOne, Iron Mountain and ServerFarm. In 2019 we predict that we will see more US providers acquiring land in Europe and speculatively building out shell buildings.
Paul Mortlock, Data Centre Investment Director at CBRE commented:
“The sheer amount of occupational activity has not gone unnoticed within the investment community. Several M&A processes are now being prepared in anticipation of a further hardening in pricing, and we are predicting a number of new players will enter bidding processes now that they have educated themselves on the impressive market dynamics. While other sectors are more closely correlated to economic and political cycles, data centres seem to be immune from the current turbulence.”
This record level of take-up, driven almost exclusively by the large US cloud companies, shows the increasing maturity of the sector. The amount of capital committed to colocation projects in 2018 is indicative of the confidence that exists for this service.
The cloud companies have now also started to cast their nets outside of the largest colocation markets, with multiple announcements during 2018. This creates a need for increased data centre development, and consequently M&A activity, across Europe. We will see plenty of both during 2019.