Data centers, the new black gold, lure billions to Belgium

Source: De Tijd

Video conferencing at home, storing things in the cloud or using artificial intelligence: citizens and companies are exploding the demand for data. But it must be stored securely, and so infrastructure investors are also pouring into the new black gold in Belgium: data centers.

On Antwerp’s Noorderlaan stands a red building that looks like a banal warehouse. But the anonymous complex houses a heavily secured data center of Datacenter United, a firm specializing in storing and processing data from other companies.

Inside the building are large rooms in which long rows of tall, narrow “racks” stand side by side. The racks resemble the lockers in a swimming pool locker room, including combination locks on the door. Behind the door of each rack protrudes a tangle of cables and servers. ‘We don’t know what’s in each rack,’ says the refrigeration technician in charge during the tour. ‘We only guarantee cooling, electricity and security.’

Data centers have been booming business for several years. With increasing home-based work, the popularity of cloud services and the rise of artificial intelligence (AI), the demand for secure storage space for data is on the rise. In recent months, deals and investments in Belgian data centers have followed in rapid succession.

In May, real estate developer Ghelamco opened its first data center for the VUB and UZ Brussel in Zellik. In April, Google announced the construction of a new data complex in Belgium. In late March, the bank KBC reported the construction of two new data centers in Mechelen and Heist-op-den-Berg. ‘What is there money for today? For logistics and for data centers,’ Adel Yahia, the Belgian top executive of the listed real estate group Immobel, recently remarked in De Tijd.

 

Limits to growth

It is written in the stars that data infrastructure will explode in the coming period to cope with high demand. According to a recent report by real estate broker JLL, citizens and businesses will use twice as much data in the next five years as all data centers worldwide have produced in the past decade. JLL sees capacity in data centers rising from 10 zettabytes (1 ZB is 1,000 billion gigabytes, or a 1 with 21 zeros) in 2023 to 21 zettabytes in 2027.

Europe’s major data centers are in Dublin and the top financial region of Frankfurt-London-Amsterdam-Paris (“FLAP”), which forms a wide arc around Brussels. But in those core cities, data centers are running up against their limits. Their massive consumption of energy and – often potable – water for cooling leads to criticism, as does the limited number of direct jobs they generate.

Especially in the Netherlands, power-hungry data centers are sensitive, now that the power grid is so congested that thousands of companies can no longer access them. Late last year, for example, the City of Amsterdam decided not to consider any new applications for data centers for the time being. ‘Hardly any data centers are being built in the Netherlands anymore, while companies like Google are moving to our country because there is still grid capacity here,’ Chris Peeters, the then CEO of grid operator Elia, told De Tijd last year.

 

Secret location

Today, the enormous growth in data centers is mainly driven by so-called hyperscalers. These are large-scale complexes of technology giants such as Amazon, Meta (Facebook), Google, Microsoft and Apple. Our country today hosts one hyperscaler: Google in Saint-Ghislain, near Mons. There, Google built its first European data site in 2010, which has already been expanded several times. The tech giant says it has already invested $3 billion in its Belgian data centers. Last month, the technology company announced it was building a new data center in the Hainaut town of Farciennes. In the future, new Google complexes may rise in Feluy, also in Hainaut, where Google bought 36 hectares of land in 2022.

Microsoft is the second hyperscaler to establish itself in Belgium. The company is currently having three Azure data centers set up around Brussels, a project worth more than 1 billion euros. The exact location is officially a big secret. But according to the trade website Computable, the three centers, which will be connected via Microsoft’s own network, will be in Zaventem, Ternat and Aalst. Both Microsoft and Google motivate the investment with the expected increase in demand for cloud services and AI applications. While Google’s Walloon data centers primarily serve the European market, Microsoft wants to attract new Belgian customers in particular with its new data centers.

 

Hospitals and government

For specialized data center operators, Belgium has long been a small and uninteresting market. A report by the sector federation Belgian Digital Infrastructure Association (BDIA) shows that Belgian data centers have a total capacity of 344 megawatts (MW), which is comparable to the peak consumption of 86,000 households.

According to BDIA, more than 2,000 Belgian companies, often hospitals and government departments, operate their data infrastructure on their own sites. The rail network operator Infrabel, for example, owns three data centers in Belgium, although it leases the unused space to other companies through its subsidiary TUC Rail.

Whereas ten years ago its own data centers accounted for 75 percent of Belgium’s data capacity, today their share has fallen below half. Indeed, more and more Belgian companies are turning to “colocation” specialists such as Datacenter United. Unlike Google, for example, where companies use digital services, colocation involves renting space where companies can put their servers. But governments, such as VRT, are also starting to use external data centers. ‘Every company moves from time to time. That’s when they end up at an external data center,” notes Laurens van Reijen, founder and CEO of Belgian data center operator LCL.

“Every company moves once in a while. That’s when they end up at an external data center.” – Laurens van Reijen, CEO Data center operator LCL

Moreover, the corona crisis lured a lot of companies to external data centers to cope with massive home-based work. ‘It was difficult for companies then to suddenly scale up their local data capacity,’ says Friso Haringsma, CEO of Datacenter United and co-founder of the sector federation BDIA. ‘Bandwidth was a bottleneck.’ The energy crisis resulting from the war in Ukraine further fueled the demand for colocation. ‘Our main cost is electricity,’ Haringsma explains. ‘That’s where we are hugely concerned. CEOs and CFOs of smaller companies were suddenly faced with a huge cost for their local data center in the energy crisis. We can offer them a fixed price per month.’

 

Four major players

Today, just under 50 colocation data centers exist in Belgium, representing a capacity of 93 MW. That, according to BDIA figures, is as much as the capacity of Belgium’s Google centers combined. But it is a pittance compared to the FLAP region. Last year alone, 135 MW of new data centers were completed in Frankfurt, figures from real estate broker CBRE show.

Four major players together control three-quarters of the Belgian colocation market. The Diegem-based company LCL is the market leader with five large data centers for some 200 clients. Datacenter United, which has taken over several Belgian sector peers in recent years, is a regional player aimed primarily at SMEs. The telecom operator Proximus uses most of its data centers itself, but also rents space to external parties. Listed group Digital Realty owns three data centers in Zaventem after acquiring Dutch player Interxion. Thanks to its pan-European presence, the American company has many multinationals as customers.

According to BDIA’s annual report, plans exist in Belgium for 35,000 square meters of new data centers, good for a capacity of more than 100 MW. This would double Belgium’s colocation capacity in the next five years. For example, LCL is investing 100 million euros over the next two years in the expansion of its centers in Aalst and Diegem. Datacenter United is building a new complex in Kortrijk. AtlasEdge, a joint venture between Telenet owner Liberty Global and the American group Digital Bridge, took over a first data center in Zaventem in 2021 and is looking at expansion.

 

Investors

Moreover, the Belgian market is in flux. Listed infrastructure manager TINC is looking for a buyer for its 75 percent stake in Datacenter United, De Tijd reported earlier this year. The Antwerp-based company may receive a €100 million valuation in the process. Proximus is looking at selling its three aging Belgian data centers in Evere and Mechelen.

Meanwhile, the first major foreign infrastructure funds are landing in Belgium. Last year, the Australian group Macquarie (former co-owner of Brussels Airport) together with the Flemish public investment company PMV bought the majority of the Dutch KevlinX, which is building a huge 32 MW data center in Neder-Over-Heembeek. EdgeConnex, a company in the portfolio of Swedish infrastructure fund EQT, is building its first Belgian data center in Ternat, most likely intended for Microsoft. Ghelamco, the first Belgian real estate developer to plunge into data centers, sold its complex in Zellik even before completion to Penta Infra, a Dutch private equity fund that is building a European data center network. And pan-European player Etix Everywhere, which has a data center in Wallonia, ended up in the hands of French investment fund Infranity last week.

In addition, several large funds with deep pockets have big ambitions around data centers. The Australian group Goodman has reportedly been looking for a location in Brussels for some time. The logistics real estate specialist wants to develop $80 billion worth of data centers worldwide over the next five to seven years. Canadian asset manager Brookfield, owner of Belgian real estate company Befimmo, and U.S. investment giant Blackstone also have billions of dollars of ammunition ready for data centers.

“In the past, infrastructure was always government owned. Data centers are the first and only one where that is not the case.” – Friso Haringsma, CEO Datacenter United

Data centers are an interesting target for large investors. The average value per data center is rising, and customers often sign long leases of easily ten years, which attracts investors. Moreover, operators can easily increase the rent, which customers pay not per square meter but per kilowatt hour (kWh), due to the huge demand and limited supply.

‘In the past, infrastructure was always owned by the government,’ explains Friso Haringsma of Datacenter United. ‘Data centers are the first and only things where that is not the case.’ Jeff Hermans, real estate lawyer at A&O Shearman, also notices tremendous interest among investors. ‘The reality is: data centers are booming. Period,’ says Hermans. ‘Many parties see data centers as the infrastructure of the future. It is a market of high opportunity and high risk. The data center market as it exists today simply didn’t exist five or 10 years ago.’

 

Fines

Still, the risks remain significant. Dutch KevlinX established its Belgian company in late 2015 but has only recently begun construction of the first phase of its new data center in Neder-Over-Heembeek. ‘The process of finding and contracting land and power, permits, design, procurement, construction, finding the right people, attracting capital et cetera takes a very long time with data centers,’ KevlinX’s spokesman told De Tijd.

Moreover, construction is very expensive and complex. A data center forms a kind of shell consisting of a simple box, which is stuffed full of servers and cables by specialized installation companies such as Equans and Cegelec. The centers must meet the highest standards. Some tenants contractually impose fines if the operator does not meet their requirements around humidity or temperature.

In addition, all sorts of detection systems and fire extinguishing systems are required to avoid the ultimate disaster scenario – a fire. Last year, a Google data center near Paris suffered fire and water damage, knocking out some of its cloud services. Two years before that, a fire destroyed a data center in Strasbourg, and many websites were down.

Experts calculate the total construction cost of a data center at 10 million euros per MW. Added to this is the crucial fiber optic connection, which easily costs 100,000 euros per underground kilometer and, for security reasons, often runs to a data center via three or four different routes. As a result, most data centers are located where there are already many cables in the ground, such as around Zaventem airport.

But those good locations are becoming increasingly scarce. Moreover, the growing number of electric cars and heat pumps means competition for limited grid capacity. Flemish distribution system operator Fluvius already warned that the arrival of new data centers poses a challenge to the medium-voltage grid to which medium-sized companies are connected. ‘There is already a large concentration of data centers in Flemish Brabant, around Brussels,’ it stated in De Tijd last summer. ‘Unfortunately, we sometimes find that we can no longer connect new projects there due to grid congestion.’ As a result, Brussels will soon bump into the same obstacles as the successful FLAP region.

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