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The total investment in global data centre infrastructure more than doubled last year, up from US$24.4 billion in 2020 to US$53.8 billion in 2021. The total number of data centre transactions increased by 64% in the same period, up from 69 in 2020 to 113 in 2021, according to a report out today by global law firm DLA Piper entitled ‘The meteoric rise of the data centre: Key drivers behind global demand’. The report surveys 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 US$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 and almost as much as the combined annual value seen in both 2019 and 2020. 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. 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.
Commenting on the survey findings, Anthony Day, Global Co-Chair, Technology and Sourcing, at DLA Piper, said: "Our report reveals record-breaking investment in data centres fueled by the irrepressible growth of the hyperscalers and the transition to cloud services that has been accelerated by the pandemic. There is no end to this demand, with investment to date in 2022 more than doubled for the same period in 2021. Data centres are energy intensive concerns and, therefore, rising energy prices and the question of security of supply are playing an increasingly important part in the decision process of where and how centres are developed. An energy efficient data centre is attractive to customers and easier to commercialise and if the energy used is also renewable then it becomes an even more attractive proposition from an ESG perspective, especially to senior executives in both Europe and North America."
Alanna Hasek, Real Estate partner at DLA Piper, added: "There is a difference in attitudes toward ESG considerations between Europe and the US, with their tougher environmental regulations and industry-led initiatives, and the Asia Pacific region. However, this is coupled with increased interest in expansion in China and India where the enforcement and monitoring of environmental standards is less stringent. It will be interesting to see if any geographical shift results in a change in industry attitudes towards how data centres are developed in the future.”