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World Bank Group’s Eric Crabtree Talks Eastern European Data Center Arena: Cost of Power Isn’t as Influential as in the West

May 11, 2018
by Josh Anderson

NEW YORK CITY, NY — As more and more markets fill with construction, more and more firms are looking across the pond for greener pastures. Some say that Europe is the next frontier for North American data center providers. However, if that’s the case, then what is Eastern Europe? At CapRE’s New York City Data Center Summit last month, we welcomed Eric Crabtree, Chief Investment Officer for International Finance Corporation at the World Bank Group to talk about the world of data centers beyond the former Iron Curtain.

Eric Crabtree, Chief Investment Officer- International Finance Corporation, World Bank Group

“As a general comment, one of the things that struck me, having worked in the emerging markets for over 20 years, and really not having much experience with North America or Europe, is that when I look at this industry, it is quite young,” replied Crabtree. “And the American firms have taken some leadership positions on the back of the hyperscale relationships, and that offers firms and investors an ability to globalize rather quickly, if they have an interest in the bandwidth. So I was a little mystified about why that wasn’t happening faster.”

However, Crabtree revealed, coming to CapRE international data center summits have helped him to realized that there is still quite a bit of growth left in both the U.S. and in Europe. “In our markets, the growth curve is steeper,” he explained. “That’s just a general rule. However, there are inflections points to watch in a lot of these markets. Is the banking industry competitive enough to drive outsourcing? Does the banking industry have a need or requirement, from the central bank, for disaster recovery? That was the initial entry point for a lot of our clients.”

“We’ve done six data center investments, the closest of which was to Europe, in the sense that we had one in Turkey when we did the Soros group,” continued Crabtree. “These assets don’t stay on the shelf long in emerging markets. It sold to Equinix in October. We have assets in Russia and Ukraine, both of which sort of filled up nicely. But a lot of the entry points is in the financial sector.”

“And like I said, if it’s not competitive, and there is a reluctance to outsource, it’s either because of the culture or because of an example like Istanbul, the cost of fiber is 10x London,” Crabtree ventured. “And that has to do with rights of way, and how it’s a historic city, so it’s a big bureaucracy as well. So, here, when we’re talking in the European context, about power driving location-power costs, the total cost of ownership factors in emerging markets are often different.”

To be clear, those calculations do include power. “But in fact, it hasn’t really entered into the equation as far as driving the location of the data centers yet in emerging markets, because there’s not that much capacity,” he clarified. “It’s not a power cost that’s driving you to a particular location.”

“So if you take Turkey as an example, one of the things that, apart from the fact that the banking sector hasn’t outsourced yet, and it’s going to be fairly slow growth curve, is that on the edge of Europe, getting back to your question, countries like Bulgaria and Poland have capacity that serve outside of the EU,” Crabtree concluded. “Russia, Ukraine, and Turkey, which in particular is served from Sofia. And a lot of that math has nothing to do with any of our total cost of ownership, so much as it has to do with political risk aversion. Firms are not wanting to put servers in halls, because they’re concerned about what might happen to those servers. And so the factors driving it are quite different.”

data center summitFor more on the European data center arena, check out previous CapRE Insider Reports covering previous remarks from this panel:

 

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