2022 Global Data Center Market Comparison

GLOBAL RANKINGS: 2022

Global Data Center Market Comparison

A Publication of Cushman & Wakefield’s Data Center Advisory Group

Contents Introduction

03

Methodology

04

The Top Ten

04

All Markets

06

Ten Markets to Watch

07

High-Weight Criteria

08

Market Size

10

Fiber Connectivity

12

Cloud Availability

13

Mid-Weight Criteria

16

Incentives

17

Taxes

18

Political Stability

20

Vacancy 22 Development Pipeline 24 Sustainability 26 Smart Cities 27 Low-Weight Criteria 28 Power Cost 30 Land Price 32 Environmental Risk 34

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Introduction

The last two years have been remarkable in many ways. Industries across the board have been confronted with change and disruption—and the data center industry has been no exception. In early 2020, many businesses faced a sudden and heightened need for greater cloud technology to connect a dispersed workforce and enable people to do their jobs in a work-from-home environment. The trend continued in 2021 as cloud migration accelerated, the need for data centers continued to grow and as major data- producing platforms—companies like Google, Amazon, Microsoft, Alibaba, Apple and others—spread their data center footprints throughout the world. Today, the question is no longer whether the largest hyperscale data center users will expand to new regions each year, but how many will expand and how quickly. One prominent change is how markets are developing. Historically, data center markets emerged when telecom companies—and later, colocation operators—built the first facilities and established footholds. But today, many of the hyperscalers that dominate cloud, network and internet services can enter a new or relatively immature market and simply begin a major build. This shift has led to rapid increases in market size, particularly in cities across Southeast Asia, South America, and soon, Sub-Saharan Africa. We anticipate secondary markets will continue to benefit as certain primary markets restrict power usage and as sustainability demands put pressure on the industry.

Indeed, widespread data center proliferation has led to concerns in many key markets across the globe. For example, Singapore and Amsterdam are locations with deep data center capabilities, but neither has removed moratoriums on new data center development declared in recent years. Each is only allowing previously-approved projects or small-phased buildouts to go forward. Ireland, too, recently considered a moratorium before ultimately choosing a more consultative approach with the industry. These types of challenges to data center growth emphasize the responsibility operators face in three areas. First, the ability to source renewable energy, if not available locally. Second, the ability to develop better methods of cooling servers. And third, the ability to design more efficient facilities to meet the sustainability goals of clients and of the countries where the data centers operate. It’s in this time of both great demand and prolific expansion—but also amidst an increasing focus on sustainability in parts of the world—that we publish this third annual edition of our Global Data Center Market Comparison. As with previous editions, we assess data center markets across the globe within 13 different categories to determine the top overall markets as well as the top performers in each of the 13 categories. With near- universal growth expected across most markets in 2022, we hope this report sheds light on potential locations for investing in, owning and operating data center facilities.

30 Research Sources 1,333 Data Centers

55 Global Markets

We define hyperscalers as the largest occupiers of data center facilities, usually the major cloud services that are leading absorption and market growth across the globe.

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OVERALL RANKINGS: The Top Ten

Methodology

The 2022 Global Data Center Market Comparison reviews the same factors outlined in our 2021 edition. We scored each data center across 13 weighted categories, enabling us to assign each metropolitan area with an overall market score.

Northern Virginia

01

07

Phoenix

02 Silicon Valley* Singapore*

08 Sydney

HIGH-WEIGHT

MID-WEIGHT

LOW-WEIGHT

Incentives Taxes Political Stability Vacancy Development Pipeline Sustainability Smart Cities

Power Cost Land Price Environmental Risk

Fiber Connectivity

Market Size

04 Atlanta* Chicago*

Dallas 09

Cloud Availability

Portland* Seattle*

06 Hong Kong

10

* Ranking Tie

This year’s edition includes some changes and updates. Seven new markets are included, featuring locations in South Asia, Sub-Saharan Africa, South America, Southeast Asia and the Nordics. The methodology in the Fiber category has changed to allow for more equitable scoring, as well as the addition of replacement data partners throughout, for a more robust deliverable.

2022 rankings saw an unprecedented tie for three of the top ten slots.

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It comes as no surprise that Northern Virginia again finished on top of the overall standings for the third consecutive year. It’s the largest data center market in the world, featuring a strong construction pipeline. It offers excellent connectivity, attractive incentives and low-cost power. Vacancy is exceptionally low and demand is high—operators and tenants alike are interested in expansion. Given those conditions, the area will likely become the world’s first two-gigawatt market over the next two years. Right behind Northern Virginia, tying for second, are Silicon Valley and Singapore. Both rank high despite a lack of available developable land, and in Singapore’s case, despite a moratorium on data center construction. Both have strong ecosystems, excellent connectivity, consistent demand, and all major cloud services available and expanding where possible. Chicago and Atlanta are tied for fourth in our 2022 ranking, both offering sizable incentives, low cost of land, plenty of development in the pipeline and lower power costs than most large data center markets. Ranked outside the overall top 10 markets last year, Hong Kong makes a big jump in 2022, coming in just behind our top five markets. It offers a robust development pipeline, excellent networks and all major cloud services are available. Our top ten rounds out with Sydney, which reprised its top 10 showing from 2020, Dallas with its quietly solid absorption and plenty of space available for future

construction, and Portland and Seattle—both sustainably focused cities in the Pacific Northwest of the U.S. Madrid is the largest gainer in the rankings from our 2021 ranking, moving up to 19th from 34th place. It’s a low-risk location with respect to natural disasters, has all major cloud services present, and is quickly tightening as take-up continues faster than development occurs. Northern Virginia again finished on top of the overall standings for the third consecutive year. New Additions Of the new markets we reviewed, Stockholm finished with the highest total score, thanks to lower-cost sustainable power and a strong political environment. Santiago, too, scored well as users both large and small continue to assess the city as a data center hub to serve Chile and greater South America. Although these rankings serve as a general set of parameters for data center site selection, these markets may not be the best locations for every case. Data center owners, operators and users should assess each market based on their specific criteria and objectives. That said, these markets show continued strength even though additional data center development will no doubt lead to changes in our rankings over time.

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All Markets

† New market in 2022 report

Amsterdam Atlanta Bangalore† Beijing Berlin Boston Chennai† Chicago Columbus

Hong Kong Jakarta

Munich Nairobi† Nashville New York City / Northern New Jersey Northern Virginia Osaka

Santiago† Sao Paulo Seattle Seoul Shanghai Silicon Valley Singapore Stockholm† Sydney Tokyo Toronto Vancouver Warsaw Zurich

Johannesburg Kuala Lumpur† Lagos Las Vegas London Los Angeles Madrid Marseille Melbourne Milan Montreal Mumbai

Oslo Paris

Dallas Delhi†

Phoenix Portland

Denver Dublin Frankfurt

Queretaro Reykjavik Salt Lake City

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Ten Markets to Watch

01

We are tracking several additional markets closely for future inclusion in our Global Data Center Market Comparison, including some global megacities. These include Istanbul, the commercial center and largest city in Turkey, with more than 15 million people across the greater metropolitan area. Istanbul’s data center market features only a handful of well-known operators at this point. With more than 12 million people, Moscow is the center of a massive Russian economy. Bangkok is a hub for 15 million people and has a strong technical manufacturing sector. Even relatively smaller coastal cities such as Cape Town or Auckland remain of interest as connectivity plays. The following sections take a deeper dive into the 13 categories we used to score each data center, the results of which helped us determine overall rankings.

Cape Town

02

Moscow

03

Athens

04 Abu Dhabi 05 Vienna 06 Istanbul 07 Hyderabad 08 Bangkok 09 Auckland 10 Mombasa

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High-Weight Criteria

Market Size

Fiber Connectivity

Cloud Availability

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Market Size

Existing major markets have several advantages that appeal to both clients and operators alike. These well-established markets have access to all major cloud services, allowing for high performance and peering opportunities. There are also known operators in these markets, with corresponding experienced staff for hire and knowledgeable sales representatives to assist with filling buildings. Local governments understand the planning approval process and utilities are not surprised when operators inquire on large power requirements. The largest markets are thus positioned for continued growth, at least until the power grid is maxed out or political imperatives change. For hyperscale cloud services, large markets appeal as an opportunity to create new business and then to expand thereafter once usage has become commonplace. Several services will lease or build a major data center after signing an initial anchor tenant, with the expectation that surrounding enterprises or government organizations that conduct business with the initial tenant will later join on

the platform. After a first hyperscaler enters, others follow to compete for market share, swelling the size of the capacity in-market and leading to further construction, with mid-scale cloud services moving in thereafter. As many primary markets grow ever larger and secondary markets move toward primary level, Northern Virginia remains by far the largest market globally, with just under 1.7 GW currently operational and a GW size coming over the coming months. The remainder of the top ten are very familiar to data center veterans: London, Tokyo, Shanghai, and Singapore follow, with Silicon Valley, Frankfurt, Dallas, Chicago, and Hong Kong thereafter. While Singapore has elected to pursue a moratorium on new construction for the time being and there are certain concerns in Frankfurt over power supply, many of these core markets continue to enjoy healthy construction pipelines or will be able to achieve rapid buildout as required. Expect further development throughout these core locations in the next year, albeit with many current mid-tier markets growing rapidly.

Northern Virginia London Tokyo Shanghai Singapore Silicon Valley Frankfurt Dallas Chicago Hong Kong Top Markets

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HIGH-WEIGHT

Total Power

1800

1600

1400

1200

1000

800

600

400

200

0

Source: Cushman & Wakefield Research

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Fiber Connectivity

HIGH-WEIGHT

Fiber density and quality are primary drivers for locating a data center, with fiber serving to connect the facility to others and to the end user. More networks are always better, with the diversity of fiber leading to lower latency and higher performance, even if certain networks connected to a particular data center may have bandwidth issues. Bandwidth is an increasing discussion point close to the user considering the move over the past two years to a work-from-home environment and the correspondingly constant usage of videoconferencing platforms for meetings that were once in person. Fiber networks are constructed in an array of formats, with short- haul fiber linking a metropolitan area or long- haul fiber connecting multiple regions and countries. Undersea cables add to the mix, directly connecting landing points in countries across seas or oceans to transmit information. While past editions of this report featured a count of fiber networks to each data center profiled, the few maps available in emerging markets across the globe led to a lack of clarity in the data, particularly as this report continues to expand in developing areas. As a methodology shift for this edition, Speedtest® data has been utilized from Ookla®, with the Speedtest Global Index™ ranking countries for overall speed and performance.

Results of the Speedtest Global Index ™ analysis show that Singapore is the fastest performer globally, with the business-friendly city-state long known as a connectivity point across Southeast Asia. Similar entrepot Hong Kong follows, with plenty of undersea cables linking the city to the region, and new entrant Santiago, suggesting that industry expectations regarding latency across South America are untrue in all cases. These are followed by a swath of United States locations, with core U.S. markets again finishing high for connectivity. Fiber density and quality are primary drivers for locating a data center, with fiber serving to connect the facility to others and to the end user.

Top Markets

Singapore Hong Kong Santiago† New York City/ Northern New Jersey Northern Virginia Atlanta Chicago Dallas Los Angeles

Silicon Valley Portland

Seattle Denver Nashville Columbus Salt Lake City Las Vegas Boston Phoenix

† New market in 2022 report

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Cloud Availability

HIGH-WEIGHT

The move toward the cloud began pre-pandemic, ramped up in 2020 and has since rapidly accelerated its growth. In nearly every market around the world, hyperscale cloud services represent 70-80% of all leasing in any given quarter as the all-out battle for market share continues. The three largest by market size (Amazon Web Services, Microsoft Azure and Google Cloud) continue to innovate swiftly, adding an array of services at the edge to join with core hosting, storage and database options, entrenching usage inside the largest enterprises and government organizations. As further entities choose to move more of their workloads to the public cloud for scalability and ease of access, a variety of markets will benefit as the hyperscalers work to bring clients online. Markets that offer multiple cloud services have become increasingly important, as early adopters are now diversifying their workloads to create true hybrid IT strategy. This will often

include multiple public cloud instances for varying uses along with some use of private cloud in a colocation environment for others. Markets that offer peering opportunities among services and plenty of on-ramps to them will gain business from these more sophisticated organizations who are looking to access a wider array of options than in the past and will likely utilize further specialized applications in the future. Of the 55 markets profiled in this report, 28 now offer all three major cloud services, with considerable further expansion planned and land already acquired in several locations. Jakarta was the big story for cloud entry this past year, moving from one to all three and, in turn, launching a large amount of construction to accommodate. Further growth is expected, particularly across Southeast Asia and Latin America, with Sub-Saharan Africa of increasing interest.

Top Markets (All three services)

Toronto Hong Kong Montreal Sydney Northern Virginia Mumbai Chicago Portland Dallas Seattle Los Angeles Zurich Silicon Valley Madrid

Sao Paulo Milan London Melbourne Amsterdam Warsaw Frankfurt Seoul Paris Osaka Singapore Atlanta Tokyo Jakarta

Of the 55 markets profiled in this report, 28 now offer all three major cloud services, with considerable further expansion planned and land already acquired in several locations.

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Cloud Availability

Hyperscale Cloud Revenue ($B)

$600

$526.2

$500

$404.3

$400

$306.3

$300

$229.5

$200

$170.4

$124.7

$91.0

$100

$0

2020 2021

2022 2023 2024 2025 2026

Source: Structure Research

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HIGH-WEIGHT

Hyperscale Cloud Revenue by Region ($B)

$124.7B Total

$1.8B Canada

$7.8B United Kingdom

$11.5B Rest of Europe

$16.6B China

$64.5B United States

$5.2B East Asia

$3.8B India

$0.7B Middle East/Africa

$8.9B South East Asia

$2.3B Australia/ New Zealand

$1.8B Latin America

Source: Structure Research

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Mid-Weight Criteria

Incentives

Taxes

Political Stability

Vacancy

Development Pipeline

Sustainability

Smart Cities

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Incentives

MID-WEIGHT

Incentives make areas more attractive for development as billions are spent on the largest- scale campuses.

A strong package of data center incentives signals that not only is a local area amenable to supporting the data center industry, but that there are likely existing relationships with local utilities and communities to allow for such development to continue at large scale. Incentives come in many forms, though mainly involve tax relief from property taxes, value added or sales taxes, discounted power with usage of renewables, and other financial support from typical rates charged for smaller- scale purchases. As the largest data center campuses cost nine figures and beyond over time to develop, this tax support enables areas to be considered for development more quickly with long-term expansions planned well in advance. While individual packages based on the size of a project are found in many countries, explicit state-level support is found most often in the United States, where 28 of 50 states now provide some form of benefit. Local county- or city-level areas will often provide their own incentive packages thereafter, creating compelling scenarios for those developers determining where to build. Most recently, the state of Connecticut in the larger New York City/Northern New Jersey market had created a new tax relief package for investments as low as $50 million in enterprise zones.

Tax incentives can also be found in certain Nordic markets, with Reykjavik, Oslo, and Stockholm all offering packages that lower taxes or provide incentives for using renewables. Kuala Lumpur, Paris, and Marseille also offer benefits to those who acquire renewable energy for their projects. Most recently, Chennai joined Mumbai as major data center markets providing incentives across India, with considerable data center growth planned across the country.

Top Markets Offering Incentives Reykjavik Seattle Salt Lake City Stockholm† Oslo Kuala Lumpur† Paris Marseille Chicago Nashville Mumbai Dallas

Northern Virginia Atlanta Columbus Chennai† Las Vegas Phoenix

† New market in 2022 report

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Taxes

While incentive packages to relieve overall tax burden on a project are attractors for data center development, new phases or smaller builds may not qualify for minimum thresholds to achieve this relief. These projects require the purchase of the same materials (generators, cooling systems, servers, racks, and more) but may entail paying full sales or value added taxes on the costs of all goods purchased. A sales tax functions as a payment to a local or national government for the total of goods sold, while a value-added tax is paid by the ultimate user at the end of the value chain. Both can rapidly add up as materials are purchased over the cost of a project. As noted in previous editions of this report, two markets covered have neither of these taxes: Hong Kong and Portland. Hong Kong

is a global financial and business capital, with a long history of pro-business policies and an accordingly robust data center sector. Portland is a rapidly growing data center market on the west coast of the United States, with dense fiber and sites available in the local market cluster in the suburb of Hillsboro. Other large markets have continued to enjoy lower taxation, including the world’s largest in Northern Virginia, with Singapore and the data center cluster in Northern New Jersey also offering lower taxes than many primary data center locations. Kuala Lumpur has an attractive sales tax rate for acquisitions as a new market in this study, and other markets throughout the United States often offer lower taxes than markets in Europe and Asia.

Top Markets

Hong Kong Portland Northern Virginia Kuala Lumpur†

Boston Seattle New York/ Northern New Jersey

Singapore Columbus Denver

Sales taxes or value-added taxes can rapidly add up as materials are purchased over the cost of a data center project.

† New market in 2022 report

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MID-WEIGHT

Sales Tax/VAT Percentage

25%

20%

15%

10%

5%

0%

Source: Cushman & Wakefield Research, multiple sources

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Political Stability

Business works best in a stable, highly functional environment and the same holds true for the data center industry. As data centers are considered mission critical to keeping applications, networks, and thus entire companies operating at their highest efficiency, the greater political situation of the data center location factors into any decision-making. As an established proxy for stability, the World Governance Indicators created by the World Bank have been considered for each market reviewed. The indicators include six distinct dimensions of stability:

1 Voice and Accountability includes the ability of a country’s population to select their government, along with freedom of expression, freedom of association, and free media. From a data center perspective, a government that allows its population to communicate freely means a safer data environment free from interference via censorship or outright theft. 2 Political Stability and the Absence of Violence or Terrorism reviews the likelihood of political upheaval in a country and the violence that could occur during such upheaval. Political violence often leads to chaos, service disruption,

3 Government Effectiveness includes the perceived quality of public services, civil service and its independence from politics, quality of policy creation and implementation, and the government’s commitment to all of this. A highly effective government leads to property being registered properly and on time, electrical grids functioning as they should, and sensible zoning requirements. 4 Regulatory Quality considers the ability of a government to create and implement regulations that allow private sector development. Well-structured and flexible regulations lead to a clear understanding for development and operation of data centers, as facilities can be more easily designed in accordance with local practice.

5 Rule of Law indicates the confidence citizens have in laws being followed, particularly including contract enforcement, property rights, police, courts, and likelihood of criminal activity. A strong rule of law provides confidence in the ability for business to flourish in the absence of arbitrary obstruction, leading to leases enforced, land titles remaining with their rightful owners, and less likelihood of criminal entry to a facility. 6 Control of Corruption includes all forms, small and large, along with the takeover and abuse of a state by private actors. Less corruption ties strongly to better contract enforcement, less hassle in operating a data center in the absence of bribes required, and overall better performance of services.

and property destruction, all of which are problematic for mission critical applications.

Three European markets and three Canadian markets all finished with the highest possible scores in this category. These are followed next by two other well-governed locations, Dublin and Stockholm, falling just behind. Not coincidentally, many of these markets have sizable renewable energy on offer, thus offsetting potentially higher taxation and providing long-term benefit to data center operations.

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MID-WEIGHT

Top Markets (due to a tie for ninth- scores assigned by World Bank on a country rather than market basis):

Zurich Oslo Toronto Montreal Vancouver Reykjavik Dublin Stockholm† Amsterdam Sydney Melbourne

† New market in 2022 report

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Vacancy

A tight market is a general indicator of heavy demand when it comes to data centers. Appetite for new capacity from hyperscale cloud services remains unsated, with the largest moving entire markets with one or two large leases. The issue around obtaining capacity is increasingly the same in most primary locations. Where the total market may have anywhere from 5-10% vacancy, finding space in large hall- or building-sized spaces is exceptionally difficult for those who require contiguous 10 MW blocks. Often a dichotomy forms between those aiming for hyperscale and those working with the retail colocation market; one side will only aim for leases of 5 MW and above, while the other works with 500 kW deployments and below. To remedy this struggle, data center sites continue to trade not only what can be built today, but what can be constructed in phases over a five-to-ten-year period. Extra land allows for build-to-suit completions and/or expansions by current tenants and ensures staying power for years to come. Markets that have higher structural vacancy often witness this once an initial hyperscaler moves to the area. In the continued battle for market share, one key service often leads to many, and capacity rapidly disappears as these services compete for local, enterprise, government, and other organizational clients.

An amazing 18 markets are now under 10-percent vacancy, double the number in the prior version of this report, led by Singapore and Northern Virginia, which are both under 2% vacant at this time due to extreme demand and, in the case of Singapore, the local moratorium on new construction. Several further markets are below 5%, including Dublin, Silicon Valley, Milan, Columbus, Paris, and Frankfurt, mainly thanks to moves by major cloud services into these markets and corresponding smaller services following suit. Expect further construction starts in the tightest markets with power available, as operators work to loosen constricted areas. 18 markets are now under 10-percent vacancy, double the number in the prior version of this report.

Singapore Northern Virginia Dublin Silicon Valley Milan Columbus Paris Frankfurt Los Angeles Atlanta Top Markets

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MID-WEIGHT

Vacancy

35%

30%

25%

20%

15%

10%

5%

0%

Source: Cushman & Wakefield Research, datacenterHawk

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Development Pipeline

The continued growth in data center needs globally has led to an ever-growing development pipeline, as formerly secondary and tertiary markets rapidly scale to ever-larger sizes. In the first edition of this report in 2019, 1.6 gigawatts were under construction across the 38 markets profiled. This swelled to 2.9 gigawatts in 48 markets last year, and now an incredible 4.1 gigawatts is currently under construction in the 55 markets of this current report. As new regions grow across Southeast Asia, the Middle East, Latin America, and all of Africa, a new array of markets will beget smaller outposts, and the cycle will continue. Several countries around the world have already observed this development, with the strength of Frankfurt leading to development in Berlin and Munich in Germany, or an initial hub of Mumbai in India leading to growth in Delhi, Chennai, and Bangalore, as examples.

Supply chain concerns over new development have appeared across the data center spectrum. Certain projects that were largely pre-designed had little disruption over the past year, while others that were launched quickly in response to market demand had some issues securing building materials or internal systems. While the temptation to blame the circumstances surrounding the pandemic is tempting, it must be noted that everything from computer chips to electricity in key data center markets is in higher demand than ever before. Disruption will likely be a minor nuisance over the next five years, as further supply chains are constructed, and vendors adjust manufacturing accordingly. Several key primary markets appear at the top of the list of capacity under development, with London surprisingly outpacing core U.S. markets of Northern Virginia and Silicon Valley, as land and power remain a bit more accessible than in many other primary European markets. Atlanta, Chicago, and Dublin each have 200 MW under construction as well, with Hong Kong, Phoenix, Singapore (despite the moratorium and due to the pre-approved Facebook project), and recently red-hot Jakarta following. Further mid-tier European and Asian markets are moving projects along in the planning stages, with the expectation of major growth in the coming five years.

London Northern Virginia Silicon Valley Atlanta Chicago Dublin Hong Kong Phoenix Singapore Jakarta Top Markets

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MID-WEIGHT

Under Development (MW)

450

400

350

300

250

200

150

100

50

0

Source: Cushman & Wakefield Research

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Sustainability

MID-WEIGHT

Recent news regarding the lack of progress on carbon emission reduction has put continued pressure on the need to derive efficiencies from all industries globally, with data centers an increasing focus. While many industries struggle to reduce their carbon footprint, as a high-tech and multilayered asset class, data centers have many options, including immersion cooling, artificial intelligence to better manage data center workloads, and sourcing renewable materials for use in construction. Not only are all these methods excellent for the environment, they also lower operating costs over the life of the asset, which can be well past nine figures in the largest data centers. Increasingly creative methods are being discovered to better utilize all parts of a data center, expanding to the re- use of waste heat to warm nearby homes. As noted in the previous version of this report, the largest hyperscale tenants have all committed to reducing their carbon footprint in all facets of operations, with data centers

the largest source of these emissions. Many are aiming to be net-zero by 2030, a date which is suddenly approaching and increasingly noted in corporate environmental reports as a source of expenditure as operations shift accordingly. Those operators that can assist with sourcing renewable energy, lowering power usage effectiveness inside a facility, and providing an array of options for greater building efficiency will continue to gain business from here on. Certain cities have committed to fully renewable power, including Montreal, Sydney, Oslo, and Reykjavik, which for those locations in Canada and the Nordics means abundant hydropower and utilities that are able to tap this energy accordingly. Vancouver and Seattle follow closely behind (again using the abundant hydropower in the Pacific Northwest for this purpose). Expect workloads over the long-term to utilize these more efficient markets more often, particularly as 2030 looms ever closer.

Montreal Sydney Oslo Reykjavik Vancouver Seattle Nairobi† Stockholm Mumbai Santiago† Top Markets

Markets that provide renewable energy will continue to gain attractiveness in coming years as operators and their tenants alike intend on fulfilling net-zero commitments.

† New market in 2022 report

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Smart Cities

MID-WEIGHT

Data centers rely on fiber networks, electricity grids, backup supplies, interconnections, and software in a dense ecosystem that is managed on behalf of clients. In a similar fashion, the leading cities of the world utilize technology to manage their own relationships, understanding employment opportunities, traffic patterns, health outcomes, crime, and much more. Successful cities in which residents can grow, feel safe, and find meaningful work generate positive ecosystems of their own, attracting talent from across the world and creating sustainably-focused communities. For this year’s proxy for smart cities, the widely quoted Smart City Index 2021 created by the Institute for Management Development in Switzerland and Singapore University of Technology and Design has been cited, to observe the impact that a well-managed city has on a local data center market. The report reviews resident perspectives on health and safety, mobility, activities, employment and educational opportunities, and governance, and combines this information with the United Nations Human Development Index.

Cities that are well- run and offer excellent expansion potential for career growth are attractive places for data center tenants and the people that work for them. Amsterdam, Sydney, London, Northern Virginia, and Toronto also finishing among the top 40 locations. Several mid-sized data center markets appear throughout the top rankings, suggesting that as these factors continue to play into data center ecosystems, local market strength in other categories may contribute to the growth of these areas. As to be expected, the top three markets considered smart cities all have sizable data center markets, including Singapore, Zurich, and Oslo, with primary data center markets such as New York/Northern New Jersey,

Top Markets

Singapore

Zurich

Oslo New York City/ Northern New Jersey Seoul

Munich

Amsterdam

Sydney

Melbourne

London

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Low-Weight Criteria

Power Cost

Land Price

Environmental Risk

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Power Cost

Analysis of data center costs often focuses on the initial capital expenditure, which includes costs of planning, permitting, acquiring land, and the construction of the building and potentially substations and fiber extensions. This sizable cost typically ranges from $7-10 million per megawatt and is a considerable barrier to entry, particularly if building speculatively. These initial costs end up as a small fraction of the overall operating expenditure over the life of the building, as the consistent need for increasing power over several phases of expansion can lead to spiraling power needs. As noted in other sections of this report, new technology (or the better use of current technology) from artificial intelligence to predict workload needs, and more sophisticated forms of cooling, can assist with saving power costs, particularly for the increasingly dense workloads favored by the heaviest users. Those fortunate enough to operate in certain climates are also able to utilize free cooling in the evenings, with many of these cooler areas also using lower- cost hydropower. The benefit of renewable hydropower cannot be understated; not only does this assist in lowering the total carbon footprint of a data center, it also is available

Power costs can tally well into nine figures over the life of the largest assets, providing an operational cost advantage to markets with cheaper power. and large-sized U.S. markets then follow, albeit with a higher mix of non-renewable energy for most of them. Direct costs for power will continue to be a debate moving forward against the indirect costs, with clients increasingly required to decide what they will be willing to pay for. at far lower cost than other methods with a concurrently lower cost of total operating expenditure. Four of the top six markets ranking lowest in power cost utilize hydropower to some degree, with Montreal leading the way and Reykjavik, Portland, and Vancouver also included. Warsaw and Johannesburg both offer low direct power cost, albeit with indirect costs in the form of a lack of renewable energy and certain grid reliability concerns (in the case of Johannesburg). Several middle-

Top Markets

Montreal Reykjavik Warsaw Johannesburg Portland Vancouver Salt Lake City Dallas

Atlanta Seattle

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LOW-WEIGHT

Power Cost (cents/kWh)

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0

Source: Cushman & Wakefield Research

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Land Price

While the cost of land ends up a small fraction of the total cost of data center construction, higher initial land pricing can provide certain barriers of entry and are a concern in several key data center markets that have grown accustomed to the largest deployments. Several factors contribute to a quality data center: access to power (and a supportive utility to work with), limited exposure to natural disasters, access to networks, provision of water for cooling systems, and potentially incentive packages for locating in a particular area. The best markets have all of these and still maintain a low cost of land, a very tricky balance with sites being in such demand. The competition for sites with other asset classes has become more acute over the past year, as distribution supply chains move closer to the residential customer and cities with constricted housing markets willingly re-zone formerly industrial land for residential purposes. Defining the data center edge will be an interesting challenge in coming years. Workloads may have to be further optimized for latency, and in certain instances relocated to areas with less constricted land. The possibility of smaller footprints over the long- term may return to consideration, with true hyperscale potentially moving further outside large metropolitan areas.

Top markets receive high marks in key categories and yet still maintain a low cost of land, a very tricky balance with sites in such demand. Finishing throughout the top ten in lowest land cost are mainly cities across secondary and lower primary markets in the U.S., with Columbus leading the way and Atlanta, Phoenix, Denver, Salt Lake City, Dallas and Las Vegas also ranking high. Most of these cities continue to have ample land for development, with few geographical constrictions and less density than more highly urbanized environments. Johannesburg also finished in the top ten this year, along with new markets Santiago and Bangalore, both of which are receiving increased interest from data center operators and hyperscalers alike.

Top Markets

Columbus Johannesburg Santiago† Atlanta Phoenix Denver Salt Lake City Dallas

Las Vegas Bangalore†

† New market in 2022 report

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LOW-WEIGHT

Land Price Per Square Foot

$100 $150 $200 $250 $300 $350 $500 $1K $1.5K $2K $2.5K $3K $3.5K $4K $4.5K $5K

$10 $15 $20 $25 $30 $35 $40 $45 $50

$0 $5

Source: Cushman & Wakefield Research

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Environmental Risk

LOW-WEIGHT

While sustainability comes in many forms, the need to locate data centers in areas safe from natural and other disasters is crucial to maintaining uptime, particularly if other sectors of the economy are disrupted.

The location of gas mains must be scrutinized, flight paths near airports must be reviewed, and a full analysis of the possibilities of failure must be accounted for via engineering and other studies before a site can be selected and construction can begin. As most large metropolitan areas have some or all of these pre-existing concerns, data center builds in densely populated areas come with additional layers of risk beyond those in more rural locations. Flood maps were reviewed for each facility to determine if the building sits in a 100- year floodplain (a 1% or greater chance of severe flooding each year) or in a 500-year floodplain (a 0.2% chance of severe flooding). With sea levels potentially rising in coming years due to global warming, data centers located in these areas may come under greater peril. Certain cities have succeeded in locating data centers entirely outside of floodplains, including Dublin, Singapore, Mumbai, Denver, Columbus, Vancouver, Madrid, Johannesburg, Queretaro, Oslo, Osaka, Marseille, Lagos, Bangalore, Kuala Lumpur, and Nairobi. As this list shows, data centers can be constructed in coastal cities and still located away from floodwaters with careful planning.

Data centers constructed in areas prone to seismic activity require additional support structure. Many organizations that choose to have their main data center in a seismically active area ensure that a full disaster recovery facility exists for backup purposes in another market, as major earthquakes can prove catastrophic for both equipment and business operations. Cities studied with the lowest earthquake risk include several primary and secondary markets across Europe (Dublin, Amsterdam, Paris, Madrid, Warsaw, Oslo, Berlin, Stockholm). Dallas, Hong Kong, Seoul, and Lagosalso ranked high in this category.. Tornadoes and hurricanes can bring equally catastrophic damage to an area, tearing through buildings and downing power lines and entire electrical grids. As with data centers located in earthquake zones, many organizations choose to have a disaster recovery location outside the area, as obtaining power after such an event can prove problematic. Most locations across Europe and the Western United States are free of this risk, as are Vancouver, Singapore, and newly reviewed markets Nairobi and Santiago.

34 / CUSHMAN & WAKEFIELD

Top Markets

Dublin Madrid Oslo Stockholm Berlin Warsaw Paris Singapore Vancouver Lagos Nairobi†

† New market in 2022 report

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Contacts

Andrew Fray International Director Data Centre Strategy & Operations +44 755 297 6953 andrew.fray@cushwake.com

© 2022 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.