The evolving data centre landscape

The city-state is overcoming regulatory and structural impediments to growth by committing to technological innovation

Singapore is widely reputed as a leading DC hub regionally and internationally. It hosts a significant DC market despite its higher property prices, build-up and operating costs relative to other countries.

Established as a leading location in Asia Pacific for co-location, US and China-headquartered technology companies with hyperscale preference, including Amazon Web Services, Microsoft, Tencent and China Telecom, are increasingly developing their data centers in Singapore. While the Republic houses fewer data centers relative to other countries in Asia Pacific, its data centers typically have higher processing capacity than its counterparts.

Still, there are headwinds to be navigated in Singapore’s DC market, primarily on the regulatory and operational fronts, driven by greater pushes for sustainability and energy efficiency by local authorities.

Singapore currently relies heavily on natural gas. DCs are projected to consume approximately 12% of Singapore’s total energy consumption by 2030. Notably, the state recently lifted a three-year moratorium on new DCs in January 2022, which aimed to curb the impact of DCs on the energy grid.

The resources that DCs typically consume is amplified in Singapore due to its tropical climate and limited land availability, translating to higher operating costs for data center operators. The cost of cooling is one of the key competitive disadvantages that Singapore faces when hosting DCs as they ideally operate at below 21 degrees Celsius. 

Furthermore, land constraints mean that DCs are high-rise buildings, requiring more energy to facilitate cooling and air flow compared to their low-rise counterparts in Europe.

So how has Singapore managed to remain relevant as a Tier 1 DC location?

The unique challenges faced by Singapore position Singapore-headquartered data centre services companies to capitalise on the evolution of the market by driving innovation. These companies may have a greater incentive to develop novel designs such as floating DCs and more efficient, cost-effective builds. 

Singapore’s ability to punch above its weight has transformed it into a global powerhouse for technological innovations. Its efforts to overcome natural resource constraints have spurred it to become an incubator of new ideas and technologies, including those related to data centres. These characteristics make the resource-scare innovation nation a valuable case study for European cities like Dublin seeking similar growth opportunities and solutions to pain points as Singapore.

On the whole, Singapore as a case study offers insight into how European cities can manage the deepening social and regulatory scrutiny on data centre construction and operation.

Beyond FLAP

In Europe, major financial centres willing to pay for improved latency to support high frequency trading platforms have driven much development of DCs. As such, European DCs have tended to cluster around the so-called FLAP markets: Frankfurt, London, Amsterdam, Paris.

However, there is limited scope to expand in these expensive urban locations, due to constraints on space, cost and energy. Our report looks at some of the alternative European cities that can become the next leading locations for DC development across Europe.

Not just DCs: a strong value chain

How and which players benefit from this anticipated demand is nuanced. Some speculators anticipate a shifting balance of power in favour of hyper-scalers that will leave co-location service providers displaced in the DC value-chain.

Irrespective of which approach comes to dominate over the next decade, growth in the overall sector will continue to support demand throughout a complex regional value chain, including adjacent hardware such as cooling systems, servers and back-up batteries, as well as the supply chain in specialist construction and civil engineering, where UK and Irish engineering firms have developed strength.

Investors like private equity firms looking to benefit from the rising tide of DCs can look at the broad gamut of players involved in enabling growth of the sector.

Of course, no sector is without its challenges. Whilst some jurisdictions are actively concerned to increase their appeal as DC locations, policymakers in others have a poor understanding of the role DCs play in the modern economy which can lead to regulatory scrutiny.

Sustainability

Ballooning DC demand has inevitably increased awareness of the sector’s huge energy requirements and resulting emissions impact. This awareness has placed operators under mounting pressure to green the European DC estate, which has lent a certain exceptionalism to the European DC market now characterised by smaller and much more efficient builds.

There are limits however to how far design efficiencies can go, making renewable energy availability a real factor in DC sustainability strategies. Indeed, many recent hyperscale projects have included their own energy generation capacity or implement circular economy concepts such as returning heat to homes and swimming pools.

Energy availability

DCs’ outsized energy demands present other issues aside from their environmental impact.

• In Ireland, it has been noted that DCs could consume 70% of the energy generated by Ireland’s national grid by 2030 if left unchecked. This kind of coverage has already invited restrictions in some energy-constrained urban areas. 
• In Amsterdam, once touted as a nascent DC hub, leaders are now trying to create rules to limit DC demands for both energy and land — moves that are likely to push DC builds to other cities.
• In London, recent DC builds have left no electricity capacity for new housing developments in certain areas of Hillingdon, Ealing, and Hounslow where DCs have sprung up, simply leaving no electrical power for other new significant connections until 2035.

Supply chain

Widespread retrofitting of existing facilities to meet growing demand whilst pursuing greater efficiencies of space inside existing facilities is happening alongside new development. This is placing never-before-seen levels of pressure on the DC supply chain, which has been impacted by supply chain issues affecting the availability of semiconductors and fibre-optic cable.

Space

DCs that occupy massive plots in and around metro areas are often seen as usurpers of prime commercial and living space. In dense European cities, a likely development is that DCs will increasingly be built up instead of out. For example, in early 2021, local magistrates in Frankfurt proposed new regulations on DCs, indicating that facilities should be built taller rather than wider in order to take up less space in this city.

Talent availability

An ageing workforce across Europe as the continent transitions to a much older demographic profile, combined with technology advancements on the DC floor outpacing the upskilling of existing labour, will exacerbate a DC workforce talent shortage as demand outpaces supply of talent in the market.