Why VIRTUS took the first step in Europe with over 400 MW in a single market

Anyone with the slightest interest in investing will at some point hear the advice "Don't put all your eggs in one basket". Our teams at VIRTUS, Macquarie Asset Management and ST Telemedia are certainly aware of this, yet we have chosen to invest in three campuses with a total of 13 data centres in a single market. Our approach may sound reckless, but I sleep very well at night. And when I look into the eyes of my colleagues on the management team, they do too. What makes us so sure that this is not a decision we will soon regret? 

A new market is emerging

Until recently, Frankfurt was the only market in Germany for large hyperscale deployments. While all other metro areas such as Hamburg, Munich and Düsseldorf are home to colocation data centres of major global brands, data centres for wholesale cloud applications were concentrated only in Frankfurt.  I remember not too long ago in 2018, in my old job, we published a press release that IT capacity in Frankfurt had exceeded 300 MW... today we are over 1 gigawatt. This was great for everyone who was already operating in Frankfurt, or at least had land and power secured, but it was extremely difficult for any new entrant to build a sustainable business case in this heated environment. So at some point, customers were interested in new metro regions to continue to grow. Berlin became that place. 

Supply attracts demand

In the Stone Age of the Internet (late 90s to early 2000s), Berlin was actually not too prominent as a data centre hub, Internet traffic was actually much higher in Düsseldorf. But the market and the demands on data centres have changed, and so has Berlin. The city has been rebuilt, the scars of political division are gone, a lot of capital, ideas and people have moved into the city. Berlin has created an environment for many start-ups to grow and has also attracted many existing industries. The state of Brandenburg, which surrounds Berlin, is Germany's second largest producer of onshore wind power and home to the country's first and second largest solar power plants. A very important factor in reducing the carbon footprint of large energy consuming industries.  

Berlin is also strategically located in Germany with short distances to Eastern Europe. Given the limited options in Frankfurt, the Berlin region offers plenty of land and power to build new hyperscale campuses. We at VIRTUS saw this potential, and the recent growth of the market through cloud adoption is proving our theory. CBRE measures growth from 29MW of IT capacity by the end of 2021 to 130MW by the end of this year. And it is not just VIRTUS that is growing, many other data centre operators are also expanding. This room for growth is attracting major wholesale customers, some of whom have already announced Berlin as a full service region. 

We haven't even started with AI

When we first started looking at Berlin, it was mainly to make room for new cloud operations. And now we have AI! And it is here to stay, not a hype, but the next evolution of IT. A well-publicised report by investment bank TD Cowen has documented the leasing of 2.1 GW in the US in 2023 in just 90 days! Any AI operator looking for large capacity to serve Central and Eastern Europe with low latency services in the short term cannot ignore Berlin. Our huge campuses are right on the spot to serve this upcoming demand.

“So VIRTUS is spending over €3BN in Berlin, but is there room for more?”

Yes! It is true that we are putting a lot of our resources into a single market, but we are actually thinking at a pan-EMEA level. We already have almost 300 MW in operation or under construction in the UK, and we are constantly looking for new opportunities in many new markets. So, while Berlin may look like an overweight in the portfolio at first glance, it will be in balance with our UK operations and in the medium term will be one of many markets in which we are active.