More cloud means more data centers

The digitization of the economy, which has been accelerated by the pandemic, has also been driving demand for the development of large data centers in Poland. The driving force behind this demand is large-scale centers (hyperscale and wholesale) and their tenants—cloud service providers, most of whom offer publicly accessible clouds, says Oliwer Goliński, Data Center Expert at 7R.

An increasing number of large data centers are being planned in Poland. How important is this segment of the real estate market?

More and more companies are now entering the Polish market to open such facilities. Data centers are a type of industrial real estate, and their server rooms are a vital part of the global infrastructure, enabling internet users to access data stored on servers, process that data, and use applications that rely on the computing power they provide.

Who are the tenants and buyers of data centers?

The data center market can be divided into three main segments. The first type, traditional retail-style facilities, are relatively small in size and offer a colocation model for servers, allowing many different customers to rent space for their equipment in a single building. They are suitable for companies that, for various reasons, choose not to use cloud-based solutions. This segment is a mature market and is characterized by relatively low growth rates compared to others.

The second type consists of wholesale centers, which also offer server colocation, but to much larger clients. Due to the specific nature of such facilities, their construction is often tailored to the needs and preferences of the end-customers who will use them for many years.

The third type consists of hyperscale centers, which operate in a similar manner to wholesale facilities, with the difference that they cater exclusively to a narrow but highly significant group of customers—the largest global cloud providers, such as Amazon, Microsoft, and Google. The number of players in this segment is very small—in fact, it does not exceed a dozen companies worldwide—but their demand for such infrastructure is growing at a tremendous rate, in proportion to the demand for their services.

How will this demand evolve?

For many years, demand for cloud services and IT outsourcing grew steadily, as did the use of digital services of all kinds. The pandemic has further accelerated this trend, driving a massive shift toward remote work, digital entertainment, online socializing, and digital public services.

Cloud services offer a wide range of benefits to users, so their popularity is only expected to grow in the future. To deliver these services, providers will have an increasing need for physical infrastructure—namely, servers in data centers. Every time we purchase cloud services, there is a server behind the cloud application located in a data center, which performs the necessary computations and stores our data.

Which locations are companies interested in such facilities considering?

At the moment, the development of large-scale data centers is mainly taking place in Warsaw. We are seeing that potential data center tenants are generally interested in our city locations—within the city limits, but not in the very center. The western part of Warsaw is of particular interest to them, due to its excellent infrastructure and the proximity of facilities already operating there.

Cloud data centers could also be established in other cities in the future. In Europe, the public cloud initially grew only around the largest business hubs, such as Frankfurt, London, Amsterdam, and Paris (known as the “FLAP” cities). Large-scale data centers offering cloud services to end-users were therefore primarily being opened in these locations. Until recently, customers from Poland typically ordered services from the Frankfurt region. Further growth will depend mainly on the degree of digitization and our economic growth, as well as the continued adoption of such services.