Four years after the dotcom crash, datacentres are becoming sexy again. But hold on, surely you have to be a technogeek to get a piece of the action? Well, not necessarily … Building explains how to hack into this rebooted sector.
Back in 2000, the IT sector was just about the sexiest market a construction firm could be in. The consultants who cracked it, such as Aukett and WSP, looked forward to a glorious future of endless switch centres, server farms and internet hotels. When the bubble popped in 2001, the IT sector accounted for 12% of Aukett’s workload, and WSP had to write off £1.2m in bad debts. And they were the lucky ones: fit-out firm Bellwater eventually died from the injuries it suffered in the crash.
But there are signs of a change over the next two years. Property services company CB Richard Ellis says the take-up of technical real estate showed a strong recovery in 2004, and predicts that 2005 will be a record year in Europe. Last month, the trade magazine IT Week reported that three American IT companies were looking to set up datacentres in the UK. CBRE predicts that the speculative development of datacentres could start by the end of this year.
But even though the work is there, it will not be easy to win. Datacentres are large buildings filled with servers, and those servers are filled with data that is priceless – imagine, for example, an investment bank’s entire system of transactions. They are either run by the companies themselves, by hosts such as Global Switch or Telehouse, or by IT services firms such as IBM or EDS. They are, out of necessity, technically demanding and highly secure.
The first wave were built for data hosting companies by contractors and consultants that happened to be in the right place at the right time. But now the client is more likely to demand experience and to have zero tolerance for defects – typically, whoever is looking after a datacentre has to offer a 99.9999% guarantee that it will be up and running at all times, and penalties for any breaks in service are severe.
And datacentres are complex. Although the envelope is little more than a shed, specialist M&E work will consume 70% of the budget. Damien Kelly of Como, Mace’s fit-out arm, estimates that on a recent project for BP, only £1m of the £8m budget was spent on construction. Their power demands, for example, are exorbitant. Global Switch’s London Docklands facility uses enough electricity to power Chelmsford just to run and cool its computers, and it has two power supplies in case one goes down.
Historically, financial institutions have been the largest customer group, driven by a strict regulatory regime and the need to prevent the slightest disruption to their service. They must also comply with the Basel II Accord by 2007: this requires them to take greater precautions to safeguard their data. There is also now a trend towards the construction of “mirror” facilities.
The threat of terrorism and the demands of insurers are also concentrating IT directors’ minds on the need to protect their data. In physical terms, this means moving it from vulnerable – and expensive – space in their own offices to more secure, often multiple, locations out of harm’s way. Since the London bombings, Kelly says his company has seen more interest in datacentre provision. “The bombers have focused people’s minds on contingency plans. The third and fourth quarters will be busy.”
The next generation
Another factor pushing the renewed demand for datacentre contruction is the rapid pace of technology itself – it’s been five years since the last big building programme and that’s a long time in the IT world. New “blade” servers use three times more power as older models, but are far more efficient at processing data. Andrew Wilson, the chief executive of Global Switch, which owns 200,000 m2 of datacentre space in Europe, says this has boosted power requirements from about 350 W/m2 to as much as 1000 W/m2. By comparison, an average office uses about 40 W/m2.
Bob Harris, the technical services director of Telehouse, estimates that most datacentre space will be obsolete in five years. “It doesn’t have enough power or cooling. There is still legacy business to be served but we’re also taking on new business where customers are using newer technology that has more intensive power demands and produces more heat. Upgrades can be done to a degree but it’s probably better to try and set up a new style of datacentre model.”
Telehouse is currently developing its “next generation” of datacentres, and expects to select a construction partner by competitive tender over the next six to nine months. Harris estimates it could cost anywhere between £30m and £70m, depending on the size, but says that it already has three occupiers lined up. He adds that it will aim to offer greater flexibility to Telehouse’s customers, with services distributed around the building in modular form rather than concentrated in one block.
But it’s not the hosting companies that will be doing the lion’s share of spending in the reinvigorated datacentre market. Datahosts who had their fingers burned before are reluctant to spend money upgrading their facilities – rather they will opt for joint investment with clients. Andrew Wilson at Global Switch confirms this – he has no set figure for how much the firm will spend on construction, because "it depends on what the customer is seeking. We can build space if the customer wants it".
Andrew Jay, a senior director at CB Richard Ellis and head of its EMEA technology practice group, says that whereas investment banks have dominated the market until now, multinationals will be the next big client group. Wilson also picks out medium-sized firms in the legal services sector as an important source of demand.
A tough customer
When the client is the end user, they tend to have more specific demands. Richard Harvell, ISG’s divisional technical services director, says the hosting companies it was working for in 2001 were looking to build a generic service to sell on. Corporate clients, by contrast, want their facilities to take into account every possible risk to their business. After 9/11, companies became acutely conscious of their vulnerability and the astronomical costs to their business of an interruption. For example, when power supplies across London went down for 34 minutes in August 2003, the Corporation of London estimates it cost the city £30m.
As the market has matured, it has developed ever higher barriers to entry. As Wilson at Global Switch points out: “Customers are much more sophisticated now; they understand the risks better.” When ISG built its first datacentre in 2001, Harvell says it was a case of being in the right place at the right time. “Nobody had experience. We were fitting out the shell and core supposedly for offices, then the datacentre provider came in and we ended up doing the installation. Today people are looking for experience.”
This is undoubtably the greatest factor in winning datacentre work. If you’ve only done office fit-outs, no paranoid bank or multinational will trust you to pull off the flawless installation of a highly complex, vitally important system. “These buildings are so sensitive, you can’t afford to have people who don’t know what they’re doing running around setting off fire alarms,” says Kelly of Como, which has worked for Global Switch.
ISG’s Harvell says that typically clients will approach a developer such as CBRE for advice, and then assemble their own team of contractors and engineers, or hire a project manager to do it for them. This process tends to be somewhat clandestine: datacentres are high-value targets. Harvell says he often gets wind of projects through contacts with specialist M&E engineers he’s worked with in the past.
Keith Sparshott is business development director for the technology and infrastructure division of Alfred MacAlpine, which has designed, built and undertaken the facilities management of datacentres. He confirms that breaking into the market is tough without proven expertise, but he goes on to suggest that firms could develop a relationship with a property developer or agents who are working on behalf of clients. This isn’t a sure-fire route, though. After all, as Harvell points out, “someone like CBRE has their own reputation to think of – they’re never going to put forward a contractor that hasn’t done a datacentre before”.
Systems that work
Firms can gain the experience they lack by recruiting suitable staff from competitors. “When people move from one firm to another, business is likely to follow. That’s what some of our competitors are trying to do. I’ve recruited on this basis before,” says Harvell.
The hosting companies themselves are more encouraging. Although both Telehouse and Global Switch stress the importance of a track record, Telehouse’s Harris says contractors can get a foot in the door if they have experience of hospitals. “We place as much importance on power supply to the end user’s cabinets as hospitals do to operating theatres,” he says. Experience of the nuclear or petrochemical industries is also an advantage: “Safety is hugely important and processes must be very well managed.”
The most promising lead for would-be datacentre builders, though, comes from Wilson at Global Switch, who refuses to specify what skills construction partners should have. “Most have experience of complex infrastructure projects. What we look for is financial credibility. We have six years’ experience in the market, we know the problems and what to do, we have enough in-house knowledge to determine whether someone is capable. They should come to us.”