CB Richard Ellis (CBRE) raised some eyebrows in July when it reported that data center deals slowed in London in the first quarter of 2008, as demand from financial services companies slackened. The report fueled concerns that the demand was ebbing in London, a major financial hub and one of the world’s busiest data center markets. Curiously, leading data center operators Equinix (EQIX) and Digital Realty Trust (DLR) reported no evidence of any changes in the London market.
It’s an academic question now, according to CBRE’s latest report on data center demand in Europe, which said that demand is back to its usual robust level. “In London this quarter, we have seen take-up levels return, both in the CNH and shell markets,” said Andrew Jay, Head of Technology Practice Group at CB Richard Ellis.” The continued growth in the CNH (carrier-neutral hotel) market is illustrative of underlying demand in the data centre market.”
Total market take-up for Q2 was 45,520 square meters, an increase on the previous quarter of 144 per cent and the third-highest leasing level since monitoring the five European tier 1 cities began in 1999. Shell space accounted for 27,410 square meters (60 per cent) while CNH leasing was 16,990 square meters (37 per cent).
While demand is solid, the financial crisis is definitely affecting the market, Jay said. “The difficulty in the capital markets has helped to constrain supply and as such the market has not been flooded with stock, which has helped maintain a healthy market equilibrium,” said Jay. “The difficulty in obtaining funding for projects means that pre-lets are a prerequisite for any large scale build-outs, given the capital-intensive nature of any such project and as such we expect the equilibrium to continue in the medium term.”
“Whilst the full impact of the credit crunch is unclear it is evident that the consequential restraint it will place on IT budgets will lead to occupiers procuring on a less capital intensive basis,” he added. “A requirement for opex solutions to support sagging balance sheets means that the market opportunities open to third party CNH operators and systems integrators will undoubtedly grow.”
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