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Australian outsourced data centre market set to peak

03 Sep 2015

The Australian outsourced data centre market is continuing to grow strongly, according to a new report from Frost & Sullivan.

The company says this is the result of increased adoption of cloud computing, driven by the consumer segment, has increased consumption of videos, social networks, mobile data and gaming, combined with the corporate sector’s use of data-intensive applications.

In 2014, data centre services revenue in Australia totalled A$826 million; a growth of 18.3% over 2013, Frost & Sullivan says. Co-location service accounted for approximately 69% of the total data centre services market.

According to Frost & Sullivan's new report, Australian Data Centre Services Market 2015, Australia's high growth phase of outsourced data centre adoption will peak in 2015 and ease off in 2016 and 2017 as the rate of new data centre capacity entering the market slows down.

The company expects data centre services revenue for 2015 to grow by 18.2%, but whilst managed hosting continues to see strong revenue growth, co-location revenue growth is beginning to ease as an increasing proportion of data centre clients migrate their co-location and managed hosting services to cloud services. 

Phil Harpur, senior research manager, Australia & New Zealand ICT Practice, Frost & Sullivan, says wholesale data centre providers and those that focus on co-location services only, face significant pressure because of this trend.

However, he says the growth of cloud services has been a key factor in developing new business opportunities for data centre specialist providers.

Frost & Sullivan predicts the Australian data centre services market to grow at a CAGR of 13.7% from 2015 to 2020. The company says managed hosting will experience stronger growth than co-location over this period, as demand decreases due to companies migrating from co-location to cloud services.

Cloud providers, especially larger global providers such as AWS, Microsoft and IBM SoftLayer are driving strong growth in the market and rapidly expanding their cloud capacity, whilst the government sector continues to increase its use of third-party hosted data centres.

Demand is also growing for disaster recovery and business continuity services, Frost & Sullivan says. It says connected, multi-tenanted data centres are best placed to provide these services. Most third-party data centre providers in Australia have multiple data centres in multiple locations.

"As the Australian data centre services market expands, diversifies and matures, there are growing opportunities for niche providers specialising in specific verticals to enter the market,” explains Harpur.

“For example, Canberra Data Centres and Australian Data Centres focus on the government sector in Canberra. The Australian Liquidity Centre (ALC), which is owned by the Australian Stock Exchange, services organisations in the financial services segment.

"To cater to the growing demand for data centre services, specialist providers, including local providers such as NEXTDC, Metronode and Canberra Data Centres, and global providers such as Equinix, Global Switch and Digital Realty, have added data centre capacity, either by expanding their existing data centre facilities or building new ones,” continues Harpur.

“A growing trend for large IT service providers and telcos that own their own data centres is to consolidate their data centre footprint by shutting down older, less efficient data centres and leasing data centre space within the larger and newer facilities of these data centre specialists, as it is more cost effective.”

Harpur  says specialist data centre service providers are carrier neutral, which encourages the development of business ecosystems within their data centres.

He says this is attracting both local and global cloud providers to their data centres.

“Cloud providers are driving greater diversity as they attract a range of other companies, such as IT service providers,” Harpur says. “Thus a virtuous cycle has been created with these data centres.”

The adoption of modular data centres is still in an early growth phase, however, momentum is beginning to build in the market and stronger adoption will occur as prices fall further.

Modular data centres cater to niche segments of the market where companies or government departments require their own built facilities, Harpur explains.

He says they have higher relative cost, and most are deployed in outdoor and often remote locations, in industries such as healthcare, education, construction, mining, defence, manufacturing, oil and gas and renewable energies.

"Another growing trend over the last two years is for commercial property owners to acquire existing data centres or build new data centres and then lease them to data centre specialist providers, IT service providers or individual companies,” Harpur says.

“Examples include Asia Pacific Data Centres (APDC) and Keppel DC Real Estate Investment Trust, both of which have purchased facilities from major local data centre providers.”

Harpur says data centre providers have several challenges.

Significant new data centre capacity has entered the market over the last few years causing lower than average occupancy rates, and placing downward pressure on data centre pricing.

However, additional capacity is generally being absorbed quickly. Securing sites in CBD locations and gaining access to sufficient power is increasingly challenging and it is becoming increasingly difficult for data centre owners to plan for additional capacity.

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