Article | Adaptive Spaces
The future of ‘Edge’ data centres is just around the corner
April 27, 2022
Investment interest in data centres is at an all-time high, which sparked us to recently release a report series ‘Capturing The Cloud’, helping to educate investors about data centres and investment opportunities. With this in mind, in this article, myself and Mark Granter, CBRE MD Investor Services, will further explore the maturing data centre landscape in Australian and New Zealand, one that is naturally beginning to mirror that of Europe and North America, as well as the future of ‘Edge’ data centres.
In recent years there has been a lot of hype and delivery of “Mega Campus” builds - data centre facilities of hundreds of megawatts (MW) - within targeted geographic areas, generally known as ‘Availability Zones’. This has been predominately driven by co-location providers for example the acquisition of greenfield development sites for Hyperscale providers like Microsoft, AWS, Google and more.
While these ‘Mega Campus’ facilities have driven a lot of the work for CBRE in recent years, looking ahead to 2026 we expect more announcements for the smaller style centre, ‘Edge’ sites, that house data from one to ten megawatts. Edge data centres are smaller facilities, close to (on the edge of) a region where there are populations of people in need of the end data, be it delivering cloud computing resources or cached content, fast access to business data like financial systems, gaming or future use cases. They will specialise in connected infrastructure with dedicated use cases based on the localised need and have the bulk of the “storage” in the campus data centres and much of the “compute” at the edge. Edge computing allows organisations to reduce latency and improve the customer experience.
The broad investment in both Mega Campus and Edge style data centre facilities combined with current investment into Pacific infrastructure has created customer interest for CBRE on both the supply and the demand side of our business.
We have customers who own their own data centres wondering whether they can divest the asset to a specialist provider; and we have specialist providers communicating interest in reviewing existing sites as under-utilised opportunities, in addition to the traditional greenfield builds. Due to many of our customers looking to transition from data centre ownership into a combination of cloud and colocation formats, we have begun running process workshops to uncover the options and best practice for these new intentions. This is one of CBRE’s strengths – supporting clients end to end, with a particular focus at the early stage (site) and later stage (operations) areas.
Interestingly, for some customers who have previously owned a “whole of building” style data centre site or lease, they are now looking to downsize to less space and to instead consider their site as an ‘Edge’ facility. These customers understand and are accepting of the need for data centre power, cooling, humidity and security to be delivered to them “as a service” rather than needing that full control as capex and opex and maintenance spends, as well as the difficulty in retaining skilled staff to manage the sites increases.
In the US specifically, the market maturity has meant that the separation of the property ownership and the operations of a site is becoming more common in a “PropCo” and “OpCo” style model. While right now in Australia and New Zealand most organisations would prefer to (and have had the luxury to) own the land, the buildings and the operations - we don’t see that continuing. As the sector continues to mature it will follow the same trends as seen in the US. Innovative commercial constructs and funding models will disrupt the traditional model.
Access to capital for long term infrastructure investments will be separated from the access to capex and opex for the data centre operations itself versus the ongoing maintenance. Data and data centres will be seen more as an infrastructure investment similar to railways, roads, power lines and national broadband networks. This means they are longer term stable investments with consistent models rather than shorter term, high return assets.
The likely winners in this sector will be savvy risk takers who work with measured investments aligned to what has happened in other markets.
‘Mega Campus’ compared to ‘Edge’ facilities
In recent years there has been a lot of hype and delivery of “Mega Campus” builds - data centre facilities of hundreds of megawatts (MW) - within targeted geographic areas, generally known as ‘Availability Zones’. This has been predominately driven by co-location providers for example the acquisition of greenfield development sites for Hyperscale providers like Microsoft, AWS, Google and more.
While these ‘Mega Campus’ facilities have driven a lot of the work for CBRE in recent years, looking ahead to 2026 we expect more announcements for the smaller style centre, ‘Edge’ sites, that house data from one to ten megawatts. Edge data centres are smaller facilities, close to (on the edge of) a region where there are populations of people in need of the end data, be it delivering cloud computing resources or cached content, fast access to business data like financial systems, gaming or future use cases. They will specialise in connected infrastructure with dedicated use cases based on the localised need and have the bulk of the “storage” in the campus data centres and much of the “compute” at the edge. Edge computing allows organisations to reduce latency and improve the customer experience.
Customer interest in both Supply and Demand
The broad investment in both Mega Campus and Edge style data centre facilities combined with current investment into Pacific infrastructure has created customer interest for CBRE on both the supply and the demand side of our business.
We have customers who own their own data centres wondering whether they can divest the asset to a specialist provider; and we have specialist providers communicating interest in reviewing existing sites as under-utilised opportunities, in addition to the traditional greenfield builds. Due to many of our customers looking to transition from data centre ownership into a combination of cloud and colocation formats, we have begun running process workshops to uncover the options and best practice for these new intentions. This is one of CBRE’s strengths – supporting clients end to end, with a particular focus at the early stage (site) and later stage (operations) areas.
Interestingly, for some customers who have previously owned a “whole of building” style data centre site or lease, they are now looking to downsize to less space and to instead consider their site as an ‘Edge’ facility. These customers understand and are accepting of the need for data centre power, cooling, humidity and security to be delivered to them “as a service” rather than needing that full control as capex and opex and maintenance spends, as well as the difficulty in retaining skilled staff to manage the sites increases.
Is the Australia and New Zealand market following a global trend on campus, core and cloud data centres?
In the US specifically, the market maturity has meant that the separation of the property ownership and the operations of a site is becoming more common in a “PropCo” and “OpCo” style model. While right now in Australia and New Zealand most organisations would prefer to (and have had the luxury to) own the land, the buildings and the operations - we don’t see that continuing. As the sector continues to mature it will follow the same trends as seen in the US. Innovative commercial constructs and funding models will disrupt the traditional model.
Access to capital for long term infrastructure investments will be separated from the access to capex and opex for the data centre operations itself versus the ongoing maintenance. Data and data centres will be seen more as an infrastructure investment similar to railways, roads, power lines and national broadband networks. This means they are longer term stable investments with consistent models rather than shorter term, high return assets.
The likely winners in this sector will be savvy risk takers who work with measured investments aligned to what has happened in other markets.
Capturing the Cloud
There has been an increase in the number and capacity of data centre facilities being developed. This report looks at the future of the data centre sector in Pacific and opportunities for investors to capitalise on this growth.
