An active M&A scene, growing renewable energy investments, subsea cables and an ever-digitising economy, João Marques Lima looks at what is once again one of Southern Europe’s biggest hosting bets. 

If Spain’s data centre market was divided into historical eras, it would now be going through its revivalism age. One of Europe’s largest and most populous nations at 505,990 sq Km and 47.4 million citizens, Spain – and Iberia as a whole – is Southern Europe’s next big thing when it comes to data centre investment opportunities, connecting the continent further into Africa and SouthAmerica.

The main data centre market is undoubtedly the capital of Madrid, once a Tier 1 destination for operators in the days of the telecoms. A reference the city would gradually climb down giving space to other metros such as Dublin, Amsterdam, or Frankfurt.

Beyond the capital, Barcelona and Valencia are the top two secondary markets, with the Catalonian capital the largest of the pair. Barcelona, in particular, has grown to serve an active SME business base and provide data replication for facilities in Madrid.

And because “no hay dos sin tres” (literally “there is no two without three”), regional markets, especially in Seville and Bilbao, are also beginning to attract interest from operators and investors. 

But what’s bringing Spain back into the limelight of Europe’s data centre boom? Here’s a few pointers:

Construction costs in line with other capitals

In its latest edition of the Global Data Centre Cost Index, Turner & Townsend, have found that building a data centre in Madrid at an average of US$7.8 per watt is now nearly the same as building a facility in other cities such as Vienna ($8.1/w), Amsterdam ($8.1/w), Frankfurt ($8/w), Paris ($8/w), Dublin ($7.8/w) and Milan ($7.8/w). This contrasts with London’s $9.1 per watt – the largest European market – or Zurich at $11.4 per watt – the highest cost per watt in the world.

Lisa Duignan, project director at Turner & Townsend, explains: “Secondary markets like Warsaw, Madrid, Milan, Berlin, Zurich and Copenhagen are buzzing with site acquisition activity during 2020, and many of the traditional hyperscale customers are turning to the build-to-suit developers for a faster route to market as they expand their cloud regions.”

“Spain has seen major investments from the likes of Amazon, with Madrid proving to be one of the fastest-growing markets this year. Also in Madrid, NTT began its first Spanish data centre in 2020. Digital Realty and their subsidiary Interxion expanded at pace across Europe during 2020, with spends on both land and data centre buildings across many cities including Madrid.”

According to Broadmedia Communications, Spain had at the end of 2019 a total of 106,000 sqm of third party data centre raised floor space available in the market.

The think tank forecasts that the Spanish third-party data centre market will grow by a “moderate” 26% for the three-year period to the end of 2022, falling short of 140,000 sqm. 

Banks and financial institutions have an interest

In the most recent survey of its kind, DLA Piper interviewed 50 senior executives based across Europe on the topic of Europe’s data centre infrastructure. Of the 50 respondents, 25 were from banks and financial institutions that had provided debt into at least one European data centre project in the previous 24 months, and 25 were from private equity (PE), funds, telecommunications corporates, data centre operators and data centre developers that had invested equity into at least one European data centre in the previous 24 months.

Those taking part in the survey were asked about which European countries they think will offer the most bankable investment opportunities for data centre projects over the next two years. 

For 8% of debt providers, they believe Spain is one of those destinations, placing the country in sixth place behind Germany, France, the Netherlands, the UK, and Switzerland. Sweden ranks the same as Spain.

As for 12% of equity investors, Spain is the eighth nation in terms of potential bankable investment opportunities, behind those named above, plus Luxembourg. Germany ranks first with both types of respondents.

Recent transactions have targeted Spain – and indeed the Iberian Peninsula as a whole – and helped shape the country’s current data centre landscape. This includes, for example, Equinix’s US$259 million acquisition of Itconic from The Carlyle Group. The acquisition included five data centres in four metros, with two located in Madrid, one in Barcelona, one in Seville, and one in Lisbon, Portugal.

Digital Realty (through its acquired Interxion), Global Switch, NTT Data Centers, Colt Data Centers and GTT are some other large operators who continue to invest in expansions and land banking for future developments, especially in the Madrid region.

Spain is big on green energy

The Red Electrica de Espana (REE; Spain’s Electric Grid) noted in its 2020 forecast report that the country had produced 43.6% of its electricity from renewable energy sources last year. Spanish plants generated 109,269 GWh of renewable power, up by 11.6% year-on-year.

This is not far off from other European giants of the likes of Germany which produced 46.3% of energy from renewable sources (according to the Bundesverband der Energie) or 44% in the UK (according to the Department for Business, Energy and Industrial Strategy – albith this only covers Q1 to Q3 of 2020). Overall, 38% of Europe’s electricity in 2020 came from renewable sources, findings published by British think tank Ember and the German think tank Agora Energiewende have revealed, showing that Spain is above the continent’s average. 

The national government has been easing the bureaucracy in order to speed up the development of green energy projects across Spain. The Ministry for the Ecological Transition and the Demographic Challenge (Miteco) has also been active, bringing to the market several GW of renewable energy for auction. For instance, most of Spain’s solar capacity in 2020 was produced from projects selected in national auctions, according to the REE. Several schemes are currently under construction or planned for different locations across Spain, in particular along the Southern and Eastern regions. 

This all translates into opportunity for data centre operators in Europe, which are in a quest to become as climate friendly as possible – and preferably be carbon neutral by 2030. At the end of 2019, Broadmedia Communications forecasts that Spain had a total of 148 MW of third-party data centre customer power available. The consulting firm forecasts that third party power will increase by around 36% for the 3-year period to the end of 2022 – equivalent to a CAGR (Compound Annual Growth Rate) of 11% per annum.

Madrid accounts for approximately 69% of current power for data centres available in Spain, with Barcelona second in rank with 18%, followed by Valencia and Seville. 

Subsea infrastructure is hotting-up

One of the most important parts of the digital infrastructure mesh are subsea cables. They transport data from shore to shore and connect our global metropoles. And the figures show it: 98% of international internet traffic is ferried around the world by subsea cables, says Google.

Spain’s subsea footprint is as a national affair as it is intrinsically linked to its neighbour Portugal’s own subsea cabling infrastructure.

Around 15 cables land on Spanish shores, mainly in Bilbao, Barcelona, Valencia and by the south of the Province of Cádiz, the closest European land territory to Morocco in North Africa. An extra 14 cables land in Portugal, in the Lisbon Region and in Sines. These cables feed communication transfers not only into Portugal, but also into Spain, especially the Madrid region.

Together, the two countries in the Iberian Peninsula are the most directly connected European nations to both Africa and Latin America – in part because of the historical ties between the regions. This is proving to be an attractive asset for expanding data centre operations in the peninsula. As more cables are planned, further development of hosting facilities is, one can say, guaranteed. 

Some of the key cables include MAREA, a 6,644 km submarine cable system across the Atlantic jointly designed by Facebook and Microsoft, and later joined by telecommunications operator Telxius. The cable links the US to southern Europe, landing at Virginia Beach in the US and Bilbao in Spain. 

Another cable that has shown a light on Spain’s growing role in this sector, is the 6,300 km Grace Hopper Cable, by Google. Set to be brought online in 2022, the subsea cable will connect the US to Bilbao, Spain, and the UK, through a collaboration between Telxius and Google.

In neighbouring Portugal, new cables are being landed to connect the country to Brazil and Africa, especially Angola (and Angola-Brazil cables are also hot at the moment). These cables also feed into the Spanish data centre market development due to its close ties with Portugal. 

Serving as the presidency of the Council of the European Union from January to June this year, the Portuguese Government is also set to unveil in March a compelling subsea infrastructure plan – the European Data-Gateway Platforms Strategy – that could set the basis for the largest subsea cable reform and investment wave on the Old Continent. Political backing from countries across the bloc has been received and this is expected to further enhance the role of Iberia in the European data centre space, consequently benefiting the development of sites in Spain’s main hubs.

All in all

In summary, the Spanish data centre market is on track for steady growth in the coming years. There are, however, some barriers that need to be overcome for the industry to truly flourish. One being bureaucracy – as it is often the case.

There are 17 autonomous communities and two autonomous cities in Spain. This sometimes creates some delays when dealing with the central government and local authorities. Collaboration between the two is essential for the advancement of the data centre market here. 

Like other European countries, the national grid in Spain is also not in the know when it comes to planning for data centres’ power needs. Network planning is another crucial factor; however, the lack of data centre planning zones does not make grid operators’ life any easier. 

Nevertheless, things are moving in the right direction and the sector will see expansions taking place, and new market entrances propelled by foreign investment, especially concentrated on new US players.

In CBRE’s Spain chapter of the Real Estate Market Outlook 2020, Lola Martínez Brioso, national director of the research department at CBRE, and her team predict that the Spanish data centre market will continue to enjoy a sustained growth. 

“The development and deployment of new technologies (5G, AI, VR, Cloud adoption) will further strengthen this growth and generate new opportunities for investors,” the commercial real estate services and investment firm says.

The presence of new investors combined with ever-growing size demands will require service providers to procure significant amounts of data centre capacity to serve underlying customer requirements.

Brioso’s team explains in the report: “Spain, with a special focus in Madrid and Barcelona, will experience a major transformation of its current data centre landscape. New ambitious projects will come to the market supported by the growing interest of international service providers to establish a presence in this market.”

The beginning of this decade truly is marking the beginning of the revivalism of the Spanish data centre industry. Last year’s several announcements, acquisitions and ribbon cutting events grew Madrid, Barcelona, Valencia, and Bilbao’s role on the wider European space, proving that secondary markets like Spain are on their way up. For Spain, this means a potential reconquest of a top stop in the European league of data centre destinations. Time will tell, but this is certainly an exciting period for the European history books. 

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