Following the success of their new modular, pod architecture or so called “midi-market product” in Paris, Digital Realty Trust (DLR) have recently fitted out some 2.8MW of capacity at their Foxboro Park site in Redhill, Surrey to offer the same model into the UK market for the first time.
With the minimum unit size now at only 250kW (this is around 2000 sq ft or sixty 4kW cabinets) and a lease as short as five years, this high quality wholesale data centre solution is now very much on the Colo-X radar screens in terms of capacity, even though it is still a slightly quirky transaction being a lease as opposed to a service contract that we typically deal in with the mainstream colocation providers. Previously wholesale solutions have very much been aimed at large scale buyers for a minimum of 10,000 sq ft (1.5MW) and for a leasehold term of at least 10 years, ideally up to 15 years, so this represents quite a dramatic change from this part of the market.
The real interest though is not just in adding a new location to our growing list of UK based facilities but that pricing for these “no frills” kilowatts is very appealing; we estimate the cost per kilowatt is at least 25% lower than even the largest colocation deals we’re aware of (larger deals equals lowest prices of course). Please note that “no frills” should in no way be taken to suggest low quality, which it isn’t, but rather that the usual “full service model” which your typical colocation provider offers is not available, so this is not a solution for every midsize buyer and indeed the requirement for the tenant to have a credible financial profile relative to their commitment will also mean this is not a solution available to all. However, for self sufficient mid-size data centre buyers such as mid-size corporates, cloud service providers or even resellers, ISPs or hosting companies this is going to be a very interesting new option.
The Real Estate or Wholesale Data Centre Sector
As a company firmly based in the real estate part of the market Digital Realty is not an operator we’ve had many direct dealings with to date although they are actually the landlord behind many colo facilities listed on Colo-X, such as Level3 Braham Street in London, Equinix Saint Denis in Paris or Servecentric’s site in Dublin. However, their listing on Colo-X is a good excuse to look at the wholesale data centre sector in general which as we’ve been mentioning for some time in our public presentations* has been having a pretty rough time of it of late in the UK and Europe. This is in complete contrast to the colocation and hosting sectors and this trend can be traced back to the Lehman Brothers collapse at the end of 2008. If you recall that the traditional buyers of these large scale wholesale solutions were banks, brokers or other financial institutions then the collapse in demand is hardly surprising, even though there was a time when their business was partly replaced by continued spending from the public sector.
The wholesale or real estate data centre sector can be broken down into two parts. The first is the dedicated or build to suit facility, whereby a very large client wants to have their own dedicated data centre solution. The minimum requirement here would probably be north of 20,000 sq ft to make this worthwhile but could be much larger, perhaps up to 100,000 sq ft. Of course as these facilities are entirely used by the client they are rarely heard about in the colocation or data centre market place, as this capacity is never offered to any third parties. Given the scale involved the largest clients could build and operate the facility themselves or may turn to some of the specialist property developers who will have acquired suitable sites (ie those with lots of power) and then either offer a scheme “off plan” or build out to the client’s particular specification. Examples of such specialist developers would include Spire Technology who developed the former Somerfield warehouse in Welwyn that now houses COLT or indeed Digital Realty themselves who also have built several dedicated data centres in Europe.
The other approach is somewhat akin to the colocation model although still a real estate solution. This is where many clients are sharing a single facility but each still has their own area (demise) and their own dedicated set of plant, so each tenant in effect still has their own data centre but shares the common envelope of the building and site overall. A good example of this would be Sentrum in Woking (see separate Colo-X listing), where the 200,000 sq ft of net tech has been taken by a number of clients such as Sungard, Telstra, AT&T and a couple of large public sector clients. In each case the client determines the specification of their particular suite and the landlord then builds and operates to this, but the key differences with the colocation model are huge, such as the typical 10,000 sq ft and 10 year lease as a minimum entry level and ideally, a strong covenant or financial profile from the buyer to give comfort to the operator on the long term commitment.
The introduction by DLR of the “midi product” to London lowers their minimum size to only 240kW with a lease structure as short as 5 years, so a dramatic shift from the traditional model. In our this means they are now very much in the mix for the larger colo deals and as such a new option for mid-size buyers to consider, especially given DLR have 2.8MW of fitted out capacity in Foxboro Park that is ready to go, ie no lead time (just like a colo deal would be)! It is also worth bearing in mind the fact that smaller clients, under 720kW will be sharing plant and infrastructure, exactly as happens in a colocation facility as opposed to the dedicated plant model that was explained above.
In terms of commercial structure, as with a typical colo deal a wholesale “midi” contract will be broken down into a fixed capacity charge and power paid on usage. On our calculations we estimate that pricing per kW is as much as 25% cheaper than the largest colocation deals we are aware of (ie the lowest colocation pricing we have seen). What you won’t get from a real estate provider is the 24×7 remote hands support that would typically be available from a colocation provider (at a separate cost mind), so this solution will only suit those clients who are happy to make their own arrangements and there’s a good chance such suppliers will already be operational with other clients on site. Otherwise, in terms of quality or stability of the operator the DLR proposition and track record will compare with even the largest colocation operators.
The other aspect to bear in mind is that whilst the lease is now only 5 years DLR as the landlord will still be expecting any prospective tenant to have a financial profile that is in reasonable balance with the commitment they are looking to take, so this will act as a slight barrier to entry but it has to be said the same would undoubtedly apply to a similar sized colocation deal.
Market Implications
For some time now we have mentioned the boundaries between the three layers of the data centre market (wholesale, colo and service providers) are becoming increasingly blurred and this new product certainly underlines this theme. With the downturn in the wholesale sector our original thinking was that the motivation for the Pod Architecture was very much driven by a need to replace the lost larger clients, but DLR are pretty adamant its more about educating the market in Europe to the wholesale data centre model and they believe by making the entry point so much smaller they can open up new markets.
Of course other wholesale operators will be watching this very closely and no doubt wishing they had the financial resources available to build 2.8MW on a so called speculative basis (ie without a contracted party to take the space). Ironically perhaps if DLR do make good progress in Foxboro Park with their “midi product” it will be easier for their competitors to raise the necessary funding to build their own versions. Certainly there are a number of wholesale data centre schemes in the UK that are either just getting going with a couple of initial tenants or yet others still waiting for that elusive first client where any additional business at all will be worth its weight in gold to get the facility convincingly out of the starting blocks. Furthermore, if the bullish forecasts for cloud computing and the like are to really drive data centre demand (and these sort of facilities are perfectly suited to cloud based applications) then this flexibility from the wholesale sector could really be a useful boost to this part of the market.
To discuss pricing in detail, specification and availability further please contact Colo-X as usual.
To understand our view on market structure, please see our recent presentation at the Information Age conference in June 2010 and available from our Downloads Section