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Brexit data flow confusion prompts datacentre project slowdown

TechUK has said it is working with government to ensure the datacentre community will continue to benefit from the free flow of data between the UK and EU after Brexit

This article can also be found in the Premium Editorial Download: Computer Weekly: Barriers to UK datacentre expansion 

Uncertainty over how a British exit from the European Union will affect data flows between the UK and the EU has knocked the confidence of overseas datacentre investors, according to UK datacentre community sources.

The sources said that new builds are being delayed or relocated, as investors weigh up the risks of pushing ahead with new facilities while a question mark remains over the future of free data flows between the EU and UK following the Brexit vote.

In the days after the outcome of the Brexit referendum was announced in late June, market watchers predicted that the economic and legal uncertainties caused by the vote could put datacentre projects on hold. Now it seems those predictions may be coming true.

Steve Wallage, managing director of datacentre-focused analyst firm Broadgroup, told Computer Weekly that he knows of three proposed UK datacentre builds, funded by Asian companies, that are unlikely now to go ahead.

Investors spooked

“Overseas investment has not been historically important to the UK datacentre market, but we were starting to see it and there were a number of new projects being planned as a result,” he said.

“In the case of the Asian investors, they have been quite spooked by it, and more so than one might expect. In their case, it’s not just a question of where else in Europe they could go, because they could take that investment to the Middle East, Africa or India, for example.”

Wallage said he has also picked up on a subtle shift in how some of the big cloud firms that have publicly committed to building UK datacentres are now positioning these facilities, as a result of the EU referendum.

For example, some companies had previously talked up how a UK datacentre would provide them with a gateway to supply services to the rest of Europe, whereas now the focus is on serving the needs of UK customers only.

“The UK has always been a very attractive area for companies coming from the US and Asia, making it an obvious location for their European HQ,” Wallage said. “But a number of those guys are saying, if we have one European location, does it make sense for us to be outside of the EU?”

Government assurance sought

Assurances from the UK government that the free flow of data between the UK and Europe will be unaffected by Brexit is something that trade association TechUK has been actively lobbying for in the wake of the EU referendum vote.

Computer Weekly understands that the organisation has written to Matt Hancock, minister of state at the Department for Culture, Media and Sport, to ask for DCMS support on this matter.

Emma Fryer, an associate director at TechUK, said the government has proven receptive and appreciates the importance of data flows in protecting the long-term prosperity of the UK datacentre market.

“While the period of uncertainty lasts, the projects that are supposed to be happening now are not going to get located in the UK because those investors need certainty [on data flows],” she said.

“If someone’s planning to do something before the end of 2016, that project is very unlikely to happen in the UK, and their lawyers are not going to advise them to choose the UK at the moment.

“What’s worrying me is the investors are saying we cannot view the UK as a place to invest, and what I don’t want to see is that prolonged.”

The quicker, the better

On the whole, though, Fryer said she is confident the UK will continue to be a prime location for new datacentre builds once the initial uncertainty surrounding data flows is dealt with.

“At the moment, we’re not seeing UK operators readjust their profit forecasts or anything like that, and it still is too early to say what the impact [of Brexit] will be,” she said.

“But the quicker we get this undertaking from government [on data flows], and the better we manage that, the smaller the impact will be.”

EU operators ready to cash in

As previously reported by Computer Weekly, there is a feeling in the UK datacentre community that the uncertainty surrounding Brexit will prompt EU-based operators to step up their marketing efforts to attract overseas investors dubious about siting a datacentre in the UK.

Jonathan Evans, of Luxembourg-based datacentre operator LuxConnect, told Computer Weekly that the post-Brexit uncertainty had prompted some companies to hedge their bets, and push ahead with investments in both the UK and other markets.

“We have seen an increase generally from multinationals, as we are a sound alternative to London because of our low-cost 'green' power, political stability and central location, and everyone in the business community speaks English,” he added.

Read more about Brexit and datacentres

Meanwhile, Jorge Balcells, director of technical services at Nordic-based datacentre provider Verne Global, said the length of his company’s sale cycles means it is too early to tell if Brexit has led to an uptick in interest in its facilities.

“London is the centre of the UK datacentre industry, and it’s a big hub for the financial sector. In terms of Brexit, I don’t think the entire financial sector will move overnight outside of London, but it’s probably realistic to expect that a percentage of that activity will go somewhere else,” he said.

“The Nordic region is very well positioned for that. Not just because of Brexit, but looking at the scarcity of power in the UK and the high cost of running and building datacentres in large, metropolitan areas.” 

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