Competitive Analysis of Fife as a Data Centre Destination

Scotland, as a data centre destination, has yet to be proved but the same can be said for many other regions, however if the Lloyds Banking Group acquire the site at IVI, then this will be a significant step and a seed change for the region as a whole.

It would be the largest single data centre transaction in the UK by an end user and could be the catalyst for other users to consider Scotland as a viable and cost effective destination. On the flip side it could result in Dumfries and Galloway becoming the main hub for Scotland. This has happened in other regions where significant inward investment has occurred – Quincy in Washington State where Microsoft developed one of their global hubs which now has 11 data centres and Groningen in Netherlands attracting Google.

Fife as Data Centre location is unknown but as legislation on power efficiency, costs and the ability to harness alternative sources, will become an attractive asset. But it should be stressed this is not a quick win and it could take up to 5 years to establish any new location as a credible alternative to established regions.

5.5.1 Regional Evaluation Matrix

Similar to the individual site analysis, we have compiled an evaluation matrix of a number of the competing regions and existing centres outside the London Hub. Whilst Groningen out scores all the other regions, Fife does compete favourably but in the main this is due to the lack of renewal energy or location of the competing regions.

We have not, as part of this brief, investigated the costs of telecom charges, either opex or capex, but assuming these are within the industry norm, the main factor to overcome is the perceived lack of track record. It is likely that to assist with overcoming this perception there would have to both political and additional financial assistance.

Although there may be a perceived lack of track record of Fife as a data centre location it is acknowledged that there are a number of relatively successful data centre operators that service small medium enterprises (SME’s) in Scotland. These providers predominantly focus on what is referred to as the retail data centre business model, where customers may lease anything from a rack through to a private suite. These include iomart in Glasgow, Lumison and Scolocate in Edinburgh and Bright Solid in Dundee, there are also a number of data centres solely constructed and operated by corporate occupiers in Scotland as previously mentioned. This highlights that locations close to Fife do have a track record and the expertise in constructing and operating data centres.

6 Data Centres and their Economic Impact

6.1.1 By itself a data centre does not create any significant levels of employment, except during the construction. The EDS scheme at Wynyard's in Middlesbrough which totals some 300,000 sq ft employs circa 40 people and most of these are electrical engineers and security personnel. The example of Microsoft's development in Washington State is often quoted as am example but a distinction needs to be made between a corporate user, such as a Bank and a provider of technology and services. It is understood that Microsoft’s new 100,000 sq ft plus data facility in Quincy, will employ approximately 50 staff once operational.

There is limited direct employment or spin off when a corporate uses a site purely for data storage as opposed to companies such as Google and Microsoft that carry out research and development and associated backroom operations, which can often entail 3rd party supplies co locating with them, thus creating clusters of excellence.

However there are a limited number of these companies but were they have established centres, research shows that they do create both direct and indirect employment and additional revenue, both by way of taxes and increasing purchasing power to the region. The Broad Report: ‘An Evaluation of the M74 Corridor’ fully covers this aspect, which we endorse.

With respect to the corporate sector, in particular the banking sector, there is no empirical evidence to suggest that a new data centre has any significant employment impact when developed in isolation with out other complimentary uses. Jones Lang LaSalle have acquired and leased data centres on behalf of this sector, the largest being 300,000 sq ft, similar to the EDS site where numbers employed have been between 30 - 40 people.

7 Target Audience

7.1.1 Overview

In section 5 we commented on market trends and of particular importance in relation to any scheme in Fife is that a significant number of corporates no longer develop their own facilities but acquire technical floor space in facilities developed and operated by a 3^rd Party.

This is borne out by the statistics and although these relate to the South East, the trend is nationwide. Between 2004 – 2009 the corporate sector, to include banks, systems integrators and telcos (excluding wholesale and retail providers) acquired in excess of 1.8 million sq ft. Post 2009 their has been only two transactions of any significance where the end user has acquired a site and fitted the facility themselves compared with approximately 50 transactions in excess of 2,000 sq ft.

In addition to the move from capex to opex, the average size of requirement has been reduced from 15,000 sq ft in 2009 to 7,500 sq ft of net technical area.

Whilst interest from an end user cannot be ruled out, it is likely that the potential target audience will be from Data Centre Providers. These could either be from the Technical Real Estate or the Retail sector. From a technical viewpoint both groups have similar property requirements but offer different leasing models to end users.

We have regular dialogue with these companies and discuss with them their future expansion plans, and whilst the majority would acquire sites speculatively within the South East, if they moved outside this region they would need to secure a pre let on part in order to kick start any scheme.

In document Data Centre Development in Fife Feasibility Study January Maximising value through expertise (Page 39-42)