Demand for datacenters in Latam will be greater than the rest of the world

Demand for datacenter infrastructure remains strong despite energy constraints, supply chain issues and rising costs, according to a recent report from Hawk, a global real estate analytics platform for datacenter environments. Hawk uses a methodology that provides real-time data to help identify, track and compare trends and prices in more than 35 datacenter markets across North America, Europe and APAC regions. For the first time, the report included Latin American markets.

According to the study, the Latin American datacenter sector is going through a growth phase. Before the pandemic, international companies in Dallas, Miami, and Los Angeles primarily served the region’s datacenter needs, as local companies had not yet outsourced their IT infrastructure or undergone the digital transformation process. However, Latin America is now expected to have the highest global growth in technology adoption, with demand for MW six times higher next decade in markets such as Mexico, Brazil, Chile, and Colombia.

The major hyperscalers are deploying infrastructure in the region. According to Hawk, the top three will deploy an additional 500 MW by 2031, accounting for about 70% of the newly deployed colocation capacity in the region. With this, there is a rapid increase in demand in Mexico and in Colombia, for example, there is a construction boom and a race for power capacity – some 400 MW in Querétaro and 127 MW in Bogotá.

The report also highlights that despite political swings in the region with newly elected presidents in Chile, Brazil, Colombia and Mexico, growth and investment in the datacenter sector has not slowed. There is a strong business sense not to support the implementation of police that would harm investments. This is especially true for investments aimed at transforming the region into digital economies. In particular, the nearshoring trend in Mexico has led to a significant increase in foreign direct investment in the country. This, in turn, has created an increased demand for data centre services on Mexican soil and in neighbouring regions.

In the study’s view, this growth curve should remain at higher levels than the rest of the world until there is sufficient digital infrastructure to meet market demand.

And in the rest of the world?

Demand for datacenter infrastructure in North America cooled after several record periods of growth between 2020 and 2022. However, levels remained high, with the sixth highest quarter of any survey period.

Many business users are currently adopting a conservative strategy towards IT infrastructure, with some opting to renew leases on shorter terms, probably anticipating less volatile prices in the near future, the study highlights.

Emerging secondary markets continue to experience high growth as developers look to other markets that offer similar benefits to major hubs, but with more favourable costs and power availability. Some companies, which previously considered Northern Virginia, are now opting for alternative locations such as Atlanta, Columbus, Las Vegas, Salt Lake City and Denver.

Most datacenter take-up (occupied space) in North America is concentrated in two or three main markets. However, in recent quarters, demand has been spread out – although the Q1 2023 take-up rate (436 MW) was the lowest since Q3 2021 (158 MW), it was much more spread out.

In Europe, demand for datacenter capacity has remained consistent. Many European countries are adjusting operations, strategies and policies regarding datacenter practices, seeking greater data sovereignty, privacy and security. For example, the United Kingdom published a report indicating the need to diversify the use of cloud computing by transitioning from a small number of international providers to a group of domestic providers. Financial groups are also in favour of diversifying and nationalising their cloud footprints.

Energy supply continues to be a challenge, limiting rent and development in areas such as Amsterdam, Dublin and London. As a result, the take-up rate was the lowest since the end of 2021, although still higher than all quarters prior to Q4 2021.

In Frankfurt and Paris, development has increased, with several new large-scale campuses planned or under development. Markets where energy is more readily available have grown significantly in the past year, including Paris, Madrid, Milan and the Nordic countries, the study highlights.

In the APAC region, which has a particular challenge as different parts have their own climates, infrastructure systems, electricity grids and other logistical factors that make development challenging, Singapore and Hong Kong are experiencing breakthroughs as the demand for cloud services grows rapidly.

Securing more datacenter capacity for most markets in the APAC region is a time-consuming and often expensive process, mainly due to a lack of land and infrastructure. However, Hawk projects an upward trend in the second half of 2023, as new financing and projects are moving forward, helping to alleviate the region’s low vacancy rate and boosting leasing processes going forward.