The disruption to everyday life caused by the Covid-19 pandemic has been immense and it is against this backdrop that our latest report, Covid: the lasting legacy, reflects the views of data centre professionals spanning 38 European countries. These thoughts, reactions and opinions come from users and owners of technical real estate covering some 4.2 million square metres of technical real estate, and give us some valuable insight.
There is little doubt that the pandemic has illustrated how important the data centre industry is and the growth in the use of connected devices across home working, education, telemedicine and entertainment, has required considerable effort on behalf of the service and infrastructure providers. These trends, of course, were already emerging, but the impact of the pandemic has helped accelerate their implementation and acceptance. The flexibility and ability of the data centre to both innovate and respond rapidly to these dynamics has served the global economy well.
However, some commentators are hypothesising that the full impact of the pandemic will not hit our industry until 2022, so what of the future?
The real impact on business
As with all sectors, for data centre operators working and running a business during the pandemic continues to create its own set of challenges.
One factor that is concerning for our respondents is difficulties with the supply chain, which was cited highly as the top pain factor by 34%. The nature of the datacentre industry is increasingly global and securing source material for builds, fit outs, replacement parts et al is rarely just a domestic operation. The supply chain for most is international which has undoubtedly exacerbated the difficulties in securing the necessary materials as movement of people and consequently goods face continued restrictions. The concern amongst our respondents is that further disruption could well impact on the supply pipeline moving forward, with 89% reporting that they expected to see further disruptions.
Of course, differing levels of concern on this issue exist amongst our categories of respondent. For those charged with delivering new space there is almost universal agreement amongst developers, designers, engineers and construction professionals that further supply chain disruption is likely. In contrast, amongst our end-users there is a notable difference with just two-fifths expecting to see further supply chain difficulties, and most of the remainder (55%) neither agreeing nor disagreeing. This could reflect that a significant proportion of our corporate respondents are now one step away from immediate supply chain problems as they have come to rely on third-party providers more and more.
The second most highly ranked impact is the increased use of remote access technologies and procedures. It is not surprising given that in most cases only essential staff have been allowed to work on site; and it also isn't surprising that respondents cited increased workload for staff as another a notable impact.
However, on a more positive note another notable change over the past six months has seen loss of orders diminish as an important impact amongst respondents. In our last survey, there was perhaps more concern as to the future direction regarding economic prospects and potential market growth, which led to the postponement or cancellation of orders. Our latest survey provides a little evidence that these fears are reducing and suggest a general reappearance in real and perceived demand levels across the industry.
Impact on expansion
In our previous survey, a significant proportion of respondents indicated that they were extremely cautious as to what challenges the pandemic would have on their data centre expansion plans. This was entirely understandable, as the virus took hold across the world and the consequences of lockdown, restrictions and a global halt on travel were yet unknown. Then, almost three-quarters indicated that they expected the pandemic would curtail their plans for expansion.
Encouragingly, the industry response over the course of the year appears to have introduced a level of optimism amongst respondents, with this proportion now falling to around two-fifths. A further 29% chose to adopt a wait and see position, whilst those who did not expect the pandemic to curtail their plans has risen significantly from 9% to 31%.
Whilst the balance of opinion continues to favour a negative effect on data centre expansion across Europe in the coming year, the momentum has swung significantly towards a more benign environment, one that could possibly move further into positive territory as news of multiple successful vaccines and timelines on roll-outs across the world continue.
Rising importance of location
In the face of the widening spread of the pandemic, the issue of data centre location appears to have become more important to our respondents with 64% highlighting it.
Whether the latest results are driven by actual experience amongst respondents or perceived fears is unclear. The varying degree of lockdown and restrictions that has been seen across Europe may well have exposed some facilities to either operational or, at the very least, access challenges. Indeed, supply chains have been tested, not just around the construction and pre-fabrication routes, but also at the operational and maintenance layers.
These supply chains would also include labour, where restrictions on travel will have been felt the most. Future-proofing facilities is a topic that has always featured high on the concerns amongst data centre owners and occupiers. Considering the experiences of 2020 and early 2021, there may well be some different metrics around the future-proofing question for our respondents to consider.
Client impact on operators
Although in general the datacentre and service providers have seemingly performed well during the months of the pandemic so far, they are not immune to the likely economic fallout. It has been widely reported that a number of sectors have been deeply impacted by falling economic activity and retail, hospitality and travel have had well publicised difficulties.
Areas of the datacentre industry that rely on these sectors for demand will undoubtedly also suffer at least in the short to medium term, although the innovative nature of service providers and product developers may well mean that opportunities for new services will fill the holes left by this falling demand. However, this has resulted in the top-rated impact that our respondents experienced with their clients being postponement of expansion plans with 57% noting this.
The next largest reported impact was the attempt to re-negotiate length of contract or lease. Just over 20% of our operators reported that clients had discussed this course of action. In addition, a further 14% have reported delayed payments. For our operator respondents, one of the major challenges they face is the potential risk to income streams via customer default. For some there is anecdotal evidence that it has been in their interest to seek to alleviate the chances of default by acting before this occurs, either through the offer of deferred payments or even payment holidays. Notably, only 6% reported the worst-case scenario, namely clients entering administration or liquidation.
The paradigm around Covid-19 has shifted
Much has been speculated about the level of transformative impact that the Covid-19 pandemic may have – a chance for a major re-boot in the way we work, shop and play. There is plenty of comment about what it means for the future of the office, commuter transport, high street retail etc. all of which will in some way impact the datacentre industry.
Whatever the long-term impact of these and other substantive issues, there is little doubt that our respondents believe that there has been a significant change in underlying fundamentals and one in which their business strategies have to take into account via the ability to offer more flexible working practices. Some 89% share this view with very similar response profiles across all our respondent categories.
These results suggest that in the long-term a more flexible approach to working, is likely to be more firmly entrenched in the economy. To a large extent, the data centre industry has enabled this changing dynamic though the innovative nature that is entrenched in its foundations. We have noted the growth in cloud services and their impact on our lives whether that be changes in the way we shop, learn, entertain, work or access healthcare. All of these activities are set to grow further in the future. The challenge to the data centre industry and its occupiers is to continue to provide the flexible and supportive infrastructure to meet this growth and encourage further changing requirements.
Conclusion
Following on from the pandemic there is no doubt that the digital infrastructure is more important than ever before. But lockdowns and uncertainty have seriously affected global economies, and as data centres and their occupiers are an integrated part of the global ecosystem, the sector cannot escape the effects of the downturn in global growth. A return to pre- Covid levels of confidence regarding future demand for datacentres was an encouraging finding from the latest independent industry survey.
However, when the virus eventually does leave us we will continue to face the challenges of productivity, social mobility, climate change and inequality that were already there, and that will in many cases have been exacerbated. What Covid-19 has demonstrated is the many ways in which technologies can contribute to addressing those challenges – but it is now time to treat those challenges as imperatives too and deploy these ideas at scale. Only then will we truly understand the lasting legacy for the datacentre industry and in fact the world.
