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Australian outsourced data centre market set to peak

By Shannon Williams
Thu 3 Sep 2015
FYI, this story is more than a year old

The Australian outsourced data center 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 center 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 center services market.

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

The company expects data center 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 center 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 center 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 center specialist providers.

Frost & Sullivan predicts the Australian data center 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 centers.

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

"As the Australian data center 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 Centers and Australian Data Centers 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 center services, specialist providers, including local providers such as NEXTDC, Metronode and Canberra Data Centers, and global providers such as Equinix, Global Switch and Digital Realty, have added data center capacity, either by expanding their existing data center facilities or building new ones,” continues Harpur.

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

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

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

“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 centers.”

The adoption of modular data centers 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 centers 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 centers or build new data centers and then lease them to data center specialist providers, IT service providers or individual companies,” Harpur says.

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

Harpur says data center providers have several challenges.

Significant new data center capacity has entered the market over the last few years causing lower than average occupancy rates, and placing downward pressure on data center 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 center owners to plan for additional capacity.

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