Asian gold rush.
The next wave of hyperscale demand may come from Asia
In August this year hot social media firm TikTok announced a $400 million investment to build its first European data center in Dublin, Ireland. It may not be the first Chinese tech business to pick Dublin, nor will it be the last, but the decision marks an important inflection point for the European Data Center sector in several ways.
Two things seem likely in the next few years. First, Chinese technology firms will continue to rapidly expand from their home nation to become a new wave of competitors on the global stage. Firms including Huawei and TikTok are increasingly becoming part of the daily lives of many of us and less well known, but still powerful players such as Alibaba, Ant Group and WeChat will quickly join them. Behind these leaders is a raft of new players building on the advantages and data gleaned from tens of millions of users to make the jump from Asian to global markets.
The second point is that increasingly political and economic concerns will combine to increase regulation of foreign (not just Chinese) digital service providers. Whether it is concern over tax avoidance, privacy or espionage, European governments and the EU collectively are becoming more robust in creating and enforcing regulations to protect markets. It is likely that included in these measures, or directly influenced by them, will be requirements to keep data under sovereign control. Many see the planned Data Governance Act at the EU as an attempt to enforce not only sovereignty of data, but European ownership of companies allowed to process EU citizens’ data.
TikTok has recently made it clear that one of the purposes behind the Dublin data center was to house all of the company’s data related to EU-customers, and that TikTok’s Irish and UK companies have become data controllers of that data. Others are likely to follow suit and build or lease space in European data centers to manage these requirements and be close to key markets.
The new wave of global leaders from Asia will most likely follow a similar path to that of the US-based tech behemoths in looking to rapidly establish data centers to deliver capacity close to markets across Europe. Like the Americans before them, these innovators are looking for cost effective solutions to quickly access the land, power and expertise to bring data center capacity on stream as fast as possible. The DFLAP markets are the initial choice. This is the well-worn path created by US companies looking for their first overseas footprints. Dublin, Frankfurt, London Amsterdam and Paris all have established data center communities and deep reservoirs of skills. It makes sense for the next wave of growth business to leverage these existing hubs.
However, the profile and popularity of these locations is also their downfall. The cost and availability of suitable land, concerns over sufficient power, and potentially the attitude of local and national authorities all conspire to undermine the long-term attractiveness of these destinations. Sustainability is also rapidly rising as a consideration and these markets do not have the strongest track record on access to abundant sustainable energy.
So, we predict a faster move to consider Nordic locations that what we saw with US businesses. Over the past four or five years we have seen some of the largest US hyperscalers and many US-based international businesses establish presence in Nordic data centers, either owned or through colocation providers. They have been attracted by flexible, cost effective and sustainable data center capacity close to key markets. These same attributes – low cost power, ample land with permission to develop, exceptional sustainability credentials and a pro-data center development, regulatory and political environment – are equally appealing to the next wave of hyperscalers from Asia. In addition, they can also benefit from the expertise built over previous years, not only in designing and delivering hyperscale facilities, but also in bringing new businesses, cultures and approaches to the Nordic market.
In 2023 the Arctic Connect project will add new impetus to the Nordic’s position as a sustainable, cost-effective gateway to Europe. This 13,000 km high speed, high capacity cable will connect Finland to Russia and Asia via the Arctic circle. It will provide a short and low latency route between these continents and further attract new players from Asia to the Nordics.
As DFLAP markets are increasingly played out the Nordic region is gearing up for this new gold rush as global leaders from China and increasingly across Asia need data center capacity here in Europe. Close to customers, in line with regulations and governance, and delivering stand-out sustainability and high-quality operations are just some of the key elements for Chinese and Asian businesses that are looking to benefit from the Nordic advantage.