The German data center market was valued at USD 5.63 billion in 2020, and it is expected to reach USD 7.33 billion by 2026, registering a CAGR of 4.69% during the forecast period (2021-2026). With the onset of the COVID-19 pandemic, the government had agreed on the part of a strategic investment to reinforce the country’s social recovery and economic stability. The allied programs have been focusing on digitizing education, healthcare, cybersecurity, agribusiness, public safety, and manufacturing in connection with industry, academic, and public sector partners to promote economic growth and skills development.
In Germany, data processing follows strict European data protection regulations. In order to prevent any data losses, the data center performs backups regularly in accordance with applicable legal provisions and precise customer requirements. The Federal data protection act that governs the exposure of personal data in Germany is the German Bundesdatenschutzgesetz (BDSG). The new German Privacy Act (BDSG-new) has been updated since the GDPR, complements, specifies, and modifies the GDPR.
Berlin, Hamburg, and Frankfurt are some of Germany’s most attractive investment locales due to the growing demand for colocation space from operators such as Colt DCS, which maintains data centers in those cities. According to the German Trade and Investment (GTAI) Group, the estimated investment in the country’s data center market was EUR 13.3 Billion in 2020 compared to EUR 8.8 Billion in 2015.
Major global public cloud providers such as Amazon Web Services (AWS), Microsoft Azure, and Google are active in Germany and are planning on investing in newer data center facilities or in using third-party data centers for their expansion plans. In September 2021, Google announced that it is planning to expand its operations in Germany with EUR 1 billion (USD 1.18 billion) worth of investments in new data centers in the country, with data centers in Frankfurt and the new Cloud region in Berlin. The new facility in Hanau, Frankfurt, is expected to be operational in 2022.
Distributing data across a large network containing numerous devices and data centers operating from enterprise locations can create problems with network visibility and control, with each device representing another potential endpoint, especially in the IoT network framework. Other devices that use edge have similar problems, loopholes in security can provide hackers easy access to the core network, further creating performance constraints for the data centers.
Key Market Trends
Increase in Colocation and Hyperscale Investments To Drive the Growth
The primary factor driving the growth of data centers in Germany is the increased investment by colocation service providers in the Europe colocation market. The increasing cloud service providers and the information technology industry is boosting the data center market in Germany.
An increase in data generation every year is forcing many companies to double their on-premise storage from time to time. More companies are opting for the data center as it addresses their storage issues without substantial upfront costs.
Companies have big-budget, and those who need more space for storing data are going for wholesale data center colocation. For instance, Vantage acquired Etix to expedite wholesale data center capacity delivery for hyper-scale and enterprise customers looking to expand in Frankfurt. The company is planning to invest USD 2 billion across five markets in Europe, including a "crown jewel" 55MW greenfield campus under construction in Offenbach, Germany, just outside of Frankfurt.
The rising number of smart hospitals in Germany owing to rising investments in digital healthcare infrastructure in the country, increasing investments in communication and technology is also boosting the market growth of data center colocation in Germany.
BFSI is Observing a Significant Growth
The high growth of electronic banking, digital storage, and virtualization in the BFSI sector is expected to increase the demand for cost-effective and energy-efficient data center solutions. As it ensures reliable and continuous availability of IT and digital banking services in a highly secure manner, it can also secure and encrypt all device communications and control user access to guard against errors and malicious intents.
The banking industry is expected to witness significant adoption of data centers owing to the increasing adoption of digital and mobile banking initiatives. Also, the adoption of blockchain technology in the industry and mobile payments are certain factors further fueling the demand for data centers in the industry.?
The digital ecosystem surrounding a bank is exploding at a rapid pace. With the constant change in demand of the consumers, there has been pressure on the banks to customize the product offerings according to their demands. Secondly, with consumers embracing a mobile lifestyle and socializing on digital platforms, they expect banks to connect with them on the same platforms.? This is affecting the demand for data centers in the BFSI sector.
The country is witnessing strong growth in digital transactions. According to Finaria, Germany ranked as the second-largest European digital payments industry with a EUR 178 billion transaction value in 2021, a 14% increase in two years. Germany’s most popular online method is PayPal, followed by invoice, debit or credit cards, and direct debit. By 2025, the German digital payments market is expected to reach EUR 274 billion.
The German data center market is moderately concentrated due to higher initial investments and low availability of resources, which present challenges to this market. Some of the key players in the market are Cisco Systems Inc., IBM Corporation, and Huawei. Some recent developments in the market include:
Feb 2021 - The Arista Network announced the successful interoperability testing of the 400G ZR transceiver modules between multiple vendors over Microsoft’s 120 km open line system. This will enable the construction of high-speed Data Center Interconnect (DCI) networks, which will further optimize the optics ecosystem for customers.
June 2021 - Broadcom launched the expanded portfolio of 100Gb, 200Gb, 400Gb and 800Gb electro-optics platform solutions for data center and cloud networks. The portfolio provides customers with a complete set of solutions to solve the industry’s growing networking bandwidth requirements, including those based on Broadcom’s 12.8-Tbps Tomahawk 3 and 25.6-Tbps Tomahawk 4 switch platforms.
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