​What’s driving NZ’s multi-million dollar data centre demand?

Managed hosting services to outpace co-location with a $272 million market value projected for 2020.
Datacom's Data Centre in Kapua, Hamilton

Datacom's Data Centre in Kapua, Hamilton

New Zealand is a relatively early adopter of cloud services but the significant capital expenditure savings from using third-party data centres, coupled with the Government’s policies to adopt Infrastructure-as-a-Service (IaaS) has provided strong stimulus, particularly in the corporate sector and SME market.

Whilst the corporate sector has increased use of data intensive applications such as data mining and data analytics, consumer segments have increased consumption of videos, social networks, mobile data and gaming.

These factors have resulted in a need for increased amounts of data storage and computing capacity in New Zealand’s data centres.

As a result, the New Zealand data centre services market grew 16.4 percent over 2013, and in 2014 totalled $118 million.

According to Frost & Sullivan’s new report, New Zealand Data Centre Services Market 2015, a growth of 18 percent in data centre service revenues is forecasted for 2015 with managed hosting recording stronger growth than co-location which will ease with the increased migration to cloud services.

The market is expected to reach $272 million by 2020 with strong growth of virtual private cloud services seeing managed hosting growth outpacing that of co-location.

Phil Harpur, Senior Research Manager, Australia & New Zealand ICT Practice, Frost & Sullivan says that after the Christchurch earthquake, there has been increased concern over the impact of external events on business operations, resulting in a growing demand for disaster recovery and business continuity services.

“Multiple, connected, multi-tenanted data centres are the most effective and cost efficient way of providing these services,” Harpur says.

“To achieve higher economies of scale, a model of fewer, larger, centralised data centres is ideal. However, this is very difficult to achieve in New Zealand due to the relatively small size of the local market.

“Larger IT services providers, such as IBM, are looking to consolidate their data centre footprint across both Australia and New Zealand into smaller numbers of larger, newer and more efficient data centres in centralised locations, often though leasing arrangements with specialist third party providers.

“As New Zealand data centre customers adopt cloud services for a growing portion of their overall IT service needs, they migrate from co-location services and managed hosting to cloud services, with some companies migrating from on-premise IT systems directly to private cloud services, negating the need for core data centre services.”

Harpur says data centre services are in high demand from the Telco/IT Services sector as cloud providers and IT service providers grow their cloud service offerings.

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High growth in data traffic over the last few years has also see the Internet / Media industry displaying robust growth in use of data centre services.

Digital Media organisations were amongst the first category to migrate to public clouds and will be a key driver of growth within data centres over the next five years, as services such as online video and online gaming become more popular.

According to Harpur, the Education vertical has increased adoption of outsourced data centre services, although a relatively slow adopter of cloud services compared to some overseas markets.

Most New Zealand educational institutions still have a significant proportion of their IT systems on-premise, though a few of them, such as the Christchurch PolyTechnic Institute of Technology have adopted the cloud relatively fast.

Data Centre Providers

There are 3 major categories of outsourced data centre providers in the New Zealand market:

•IT Service Providers account for the largest segment in the market and often lease wholesale or co-location space to smaller local cloud providers - Datacom and IBM are the two largest providers

•Telcos operating in New Zealand that own their own data centres include Spark Digital (which dominates this market segment), Vocus, Vodafone and Vector

•Specialist data centre providers are carrier neutral and generally have a high level of expertise in the data centre services industry.

Due to the relatively small size of the New Zealand market, the specialist data centre providers segment is relatively small and under-developed. The major local provider, Revera, has been acquired by Spark Digital.

According to findings, the average power density requirement of data centres is now up to 30KW to 40KW per rack and continues to increase in line with the increasing demand for high-performance computing applications.

As rack densities decrease, Harpur believes physical data centre space needed declines - this trend impacts data centre providers offering co-location services on both a retail and wholesale level.

Going forward, Harpur believes data centre providers have several challenges.

“Securing sites in CBD locations (where property prices are at a premium and continue to rise; especially in Auckland), and gaining access to sufficient power is increasingly challenging,” he adds.

“New Zealand’s relatively small market size and the lack of suitable locations to build additional capacity exacerbate this issue making it increasingly difficult for data centre owners to plan for additional capacity.”