Global investment in data centres more than doubled in 2021
The total investment in global data centre infrastructure more than doubled last year, up from $24.4 billion in 2020 to $59.5 billion in 2021. The total number of data centre transactions increased by 64% in the same period, up from 69 in 2020 to 117 in 2021, according to a report from global law firm DLA Piper.
The report surveyed 100 senior executives from infrastructure, equity and debt provider firms and data centre developers from around the world and follows a similar report carried out in 2020.
The extraordinary growth is expected to continue this year supported by the fact that there have been 41 transactions, worth $21.3 billion, for the current year to 7 June 2022. This is an increase of over 100% compared to the same period last year.
Moreover, 45% of developers, 56% of debt providers, and 67% of equity investors are planning to invest in four or more data centre projects in the next 24 months; up from 10%, 27%, and 37% respectively who invested in four or more data centres in the past 24 months. The record-breaking demand for data centres is driven by the growth of hyperscalers, such as Facebook, Google, and Microsoft, which have thrived amid the transition to cloud service which has itself been escalated by the pandemic.
Although data centre investment has been mainly targeted in the United States (US) and Europe, the Asia-Pacific (APAC) region is expected to be the biggest source of future growth. Despite 70% of respondents considering US data centre assets to be overvalued, the country accounts for almost half of global hyperscale capacity and has the biggest pipeline of data centre projects. However, 79% of respondents chose China as one of the top three countries they expect to see the biggest growth in investment over the next 24 months, followed by India (56%) and the US (54%). This shift towards investment in APAC can be seen as driven by the rise of Chinese hyperscalers, including Alibaba, Tencent and ByteDance.
Energy security is increasingly viewed as one of the most significant factors shaping data centre investment. It found 90% of equity investors, 89% of developers, and 85% of debt providers would pay a premium to invest in a site with a good and cost-effective power supply. Global gas and electricity prices have soared in the past 12 months, impacting greatly on data centre operating costs.
By region, senior executives in APAC are most likely to pay a premium for energy security, at 98%, compared to 82% in Europe and 80% in the US. APAC’s willingness to pay a premium for energy security may be a result of rolling power outages in China and India in the second half of 2021.
ESG is another significant factor shaping data centre investment. Almost all senior executives (94%) say that scrutiny and due diligence surrounding ESG issues increased in the past 24 months, so much so that 75% of debt providers and equity investors and 70% of developers, would pay a premium to invest in a site with very good to excellent ESG credentials.
However, the level of commitment to ESG varies between regions, with 84% of those in Europe and 80% of those in the US willing to pay a premium for a site with very good to excellent ESG credentials, compared to just 56% of those based in APAC. The increased importance of ESG in Europe and North America reflects regulatory requirements and industry-led initiatives such as the Climate Neutral Data Centre Pact, launched in January 2021. The agreement set a target to achieve climate neutrality in the European data centre sector by 2030.
“Globally, our report reveals that although the data centre industry is booming across the board, Western Europe and the US are currently the most mature markets,” said William Marshall, energy practice legal director, at DLA Piper in Ireland. “This demand is likely to continue as the investment to date in 2022 has more than doubled for the same period in 2021.
“Locally in Ireland, operators are aware of the expectations from Minister Eamon Ryan that data centres will have to fit into Ireland’s climate targets. Data centres are energy intensive and the question around security of supply, availability of materials and rising energy prices are all key considerations in the decision process of where and how data centres are developed. Grid constraints and related policy are also significant issues for any Irish project to examine. An energy efficient data centre is attractive and if the energy used is also renewable then it becomes an even more compelling proposition from an ESG perspective.”
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