The IT crowd

Data storage is commercial real estate’s next frontier

Total Property - Issue 7 2017

The digital society in which we live has created changes in the way people live, work and communicate. Around 3.5 billion people use the internet today, and our increasing reliance on technological devices and broadband has driven demand for bandwidth from data centres.

Without data centres, today’s world stops. Banks teeter, flights are grounded and the internet grinds to a halt.

Yet despite their emergence as digital nerve centres of the world economy, data centres attract little public attention.

Of all the commercial property asset classes, they are the least visible – they typically reside in large, anonymous-looking, purpose-built warehouse-style buildings in industrial areas, business parks or in city fringes.

But they are an asset class investors need to watch. Analysts in the sector argue that a long-term investment in a modern data centre will provide a secure income stream. The sector is also less vulnerable to economic downturns, given the ongoing digital revolution.

The competition to house computer systems is heating up. The New Zealand data centre services market is expected to reach $272 million by 2020, driven by high growth in data traffic.

Data centres provide the framework for today’s rapidly expanding digital world, and the growth of the internet is driving an enormous appetite for network capacity and data storage.

Public consumption of videos, social media, mobile data and gaming has exploded in recent years. Internet service provider Chorus has reported that the average user on its network is now using 150 gigabytes per month - 50 percent higher than the year before - while Orcon says its customers are consuming, on average, 240GB a month, and it predicts this number will double by the end of 2018.

The business sector has upped its use of data-intensive applications such as data mining and data analytics. Data has become a vital tool for businesses in almost every industry. Even smaller businesses are using bigger data.

The market for storage, collaboration and information management tools is growing, with quality of data storage now a critical factor in a country’s ability to attract business.

New Zealand has the potential to be a safe haven for data storage in Asia-Pacific region.

Professor Leo Paas, an expert on big data at Massey University, says: “There's no reason New Zealand cannot emulate countries such as Iceland, and become a hub for data storage.

“I think it's an innovative and entrepreneurial mentality that counts. I think you see that in New Zealand in the creative industry.”

In New Zealand’s favour is that it is viewed as one of the world’s top digital economies, along with Singapore, the UK, the UAE, Estonia, Hong Kong, Japan, and Israel.

A recent report by Fletcher School at the US’s Tufts University characterised New Zealand as having high levels of digital development and a fast rate of digital evolution, and attributed its strong digital economy to a positive combination of infrastructure, incubating start-ups, a cultural commitment to innovation, and government support.

New Zealand was ranked ahead of Australia, Scandinavian countries and South Korea, which the report claims are at risk of falling behind without further innovation.

The rollout and uptake of Ultra-Fast Broadband (UFB) across New Zealand is another drawcard, with New Zealand now ahead of Australia when it comes to internet speed.

According to figures from global data centre analysts Data Center Research, there are 29 large data centres in New Zealand, and three cloud service providers, with facilities located as far north as Whangarei and as far south as Invercargill.

Datacom is seen as leading the way in data centre investment, with revenues from its IT services hitting $500 million last year.

Datacom has four large data centre facilities, located in Auckland, Hamilton, Wellington and Christchurch and covering more 10,000m2.

New entrants are bolstering the market. US cloud services provider Hyland announced at the start of the year it was opening two data centres in New Zealand — in co-location facilities in Auckland and Wellington, while Chinese technology giant Huawei revealed plans to begin building a cloud-computing data centre – possibly in connection with a local partner – in New Zealand within two years.

Huawei, which aims to become the world's second-largest smartphone company – behind Samsung – by next year, said the initial focus of its New Zealand data centre would be to serve the local market, but it could also become a hub for the wider region.

Huawei spokesman Andrew Bowater said there was an opportunity for “NZ Inc.” to position itself as a safe haven for data. The obvious location for the data centre was Auckland but it “could be anywhere”, he said.

Read more market insights from Total Property

Subscribe to receive the latest commercial news and insights from Bayleys Total Property