Increasing connectivity and massive content generation is driving growth and interest in the market for large data storage capabilities.
Speaking during the Canadian Investment Review’s 2024 Investment Innovation Conference, Nick Minto, senior vice-president of commercial real estate at PIMCO, highlighted that cloud-based migration has become a key strategy for enterprises looking to enhance their global data storage capabilities.
He noted that hyper-scalers have reported year-over-year growth ranging from 17 to 30 per cent per year, with overall growth reaching approximately 150 per cent over the past five years. This growth is expected to continue, he added.
Artificial intelligence has emerged as an additional driver for the data centre industry, particularly due to the need for both AI training and inference facilities, said Minto. “These are large campuses that are located in areas where there is abundance of renewable power [and] abundance of government support.”
In contrast, AI inference facilities are located closer to the end consumer, he said, as there’s a need for AI computing and crowd-based operations to respond more quickly to consumer demands. As a result, the demand for data centres has led to a significant decrease in vacancy rates, said Minto, which have falled to record lows. In the U.S. alone, there are about 12,200 megawatts of installed capacity, with an additional 200 megawatts available. In Europe, there are roughly 4,600 megawatts of installed capacity and about a hundred megawatts available.
“That demand-supply imbalance is creating a perfect backdrop for rental growth, with rents increasing somewhere between 10 to 12 per cent over the past year. Many hyper-scalers are experiencing more demand than their available capacity can accommodate.”
Read: Are AI’s energy demands impacting the appeal of data centres to institutional investors?
In Europe, capacity has historically been concentrated in five established markets — Amsterdam, Dublin, Frankfurt, London and Paris — commonly referred to as Tier 1 markets (categorized based on having more than 400 megawatts of installed data centre capacity). This situation may change in the very near future, said Minto.
“There is a growing need to mitigate and distribute workloads beyond Tier 1 markets to Tier 2 markets and Tier 3 markets, which are still high-growth and appealing areas within Europe, such as Madrid, Milan, Warsaw and Berlin.”
Tier 1 markets still face significant constraints related to power and planning, he noted, with some government intervention limiting the development of new capacity development. Consequently, the migration of data centres will need to shift to Tier 2 and 3 markets, which typically encounter fewer permitting challenges, allowing for faster development processes. Governments in these markets support and encourage increased capacity and data centre development, said Minto, as it generates skilled labour jobs and tax revenues.
Europe’s advocation for digital sovereignty is an additional driver for a distributed workload model, he noted. “European regulation is enforcing that data is now housed within European facilities rather than sitting within global data centres. Currently, only about 20 to 30 per cent of European data is stored within European facilities, prompting governments to require and mandate the establishment of sovereign clouds.”
Read more coverage of the 2024 Investment Innovation Conference.