INDUSTRY INSIGHTS

The Middle East data center colocation market was valued at USD 1.43 billion in 2022 and is expected to reach USD 2.13 billion by 2028, growing at a CAGR of 6.83%. The market is driven by rapidly deploying technological innovations such as 5G and AI-based technology. Moreover, deploying submarine cables and developing smart cities drive regional data center construction. The Middle East data center colocation market is led by countries such as Israel, Saudi Arabia, the UAE, Bahrain, Oman, Kuwait, and Turkey. The smart cities in the Middle East include Abu Dhabi and Dubai, which witnessed data center construction investments due to the increased demand for data storage and processing.

KEY HIGHLIGHTS

• In the Middle East data center colocation market, the UAE and Saudi Arabia are the major contributors to the capacity in the region with around 35% and 23%, and the market in these countries is expected to skyrocket in four to five years due to the shift of the oil economy to the digital economy in the region. Cloud-based services, smart city developments, and fiber connectivity are other factors driving continuous colocation data center investments across the region.
• The region's major global cloud service providers include Amazon Web Services, Tencent, Microsoft, Google, Alibaba, Oracle, and Huawei Technologies. For instance, the Oracle cloud region is co-located in Mobily Jeddah, Saudi Arabia.
• Digitalization across businesses will increase data center investments by colocation, cloud, Internet, and telecommunication providers. Some telecom companies such as Ericsson, stc, Turk Telecom, Cellcom, Zain, Nokia, Vodafone, Ooredoo, du, and Omantel are responsible for deploying and introducing 5G services in Middle Eastern countries.
• The presence of industrial parks, the availability of land, and the government's support motivate operators to develop data centers in the region and boost the Middle East data center colocation market. For instance, the government of Bahrain announced the launching of its first data center park, which includes the development of its first data center by stc Bahrain through collaboration with the Ministry of Transport and Telecommunications.
• The Middle East data center colocation market will likely witness new players' entry. In 2022, some new entrants included Digital Realty, Infinity, Damac Data Centres (EDGNEX), Global Technical Realty, Quantum Switch Tamasuk (QST), and ZeroPoint DC. However, these new players will face competition from local and established global players.

MARKET TRENDS

Rise in the Procurement of Renewable Energy Sources

• The Middle East has an abundance of solar energy, and most countries in the region are undertaking renewable energy strategies & visions to develop renewable energy projects and meet the carbon-neutral goals set by respective governments in the region.
  • In the UAE, the Energy Strategy 2050 aims to increase the share of renewable energy from 25% to 50% in the total energy mix by 2050.
  • Saudi Arabia has launched The National Renewable Energy Program (NREP) under Vision 2030, where 13 projects will generate over 4.8 GW of renewable energy. In addition, Bahrain plans to generate around 280 MW of electricity from renewable sources by 2025, increasing to around 700 MW by 2030 to attain national renewable energy targets.
• In December 2022, Saudi Arabia announced the development of 10 renewable energy projects with a power capacity of 7 GW, which is part of the Kingdom’s 2030 Vision.
• In February 2022, Quantum Switch Tamasuk (QST) signed a deal with the Ministry of Communications and Information Technology (MCIT) Saudi Arabia to develop data center facilities in Saudi Arabia. Additionally, both parties will collaborate to secure and develop renewable energy sources to power their facilities.
• Some companies such as Equinix, Moro Hub, and Khazna Data Centers are investing in renewable energy for installing solar panels and innovating to benefit from solar energy generation. For instance, in November 2022, the Moro Hub data center facility located DEWA solar farm made the Guinness World Records list, as it is one of the largest solar-powered data centers in the world.

Increasing Cloud Investments
The increase in digitalization and the shift of workloads to cloud platforms from on-premises facilities to make their operations more efficient and scalable witnessed an increase in investments by cloud service providers in the Middle East over the last few years. Most cloud regions are likely to be co-located in the facilities of major operators.

• Amazon Web Services aims to develop the infrastructure region in Tel Aviv, Israel, to set up its facility, which will likely be operational in 2023.
• In 2022, Google launched its first local cloud region in Israel, Amazon outpost cloud services were deployed for the first time in Oman in the Oman Data Park, and Microsoft established its first global data center region in Qatar.

SEGMENTATION INSIGHTS

• Most facilities in the Middle East data center colocation market are being developed to operate at a PUE of less than 1.5. In contrast, few facilities in countries like Turkey that adopt partial free cooling during peak winters aim to operate at a PUE of less than 1.3.
• In the Middle East data center colocation market, investments in cooling infrastructure contribute the major share of more than 65% in the mechanical infrastructure due to the high temperature in some countries during the peak summers.
• The region witnessed growth in the deployment of data centers in Tier III and Tier IV certification in the design phase/construction phase of the region. At the same time, most private and public entities (BFSI, education, government) have received Uptime Institute’s Tier III/IV certification, either during the design phase or for the constructed facility.

GEOGRAPHICAL ANALYSIS

• The UAE dominates the regional market in terms of data center developments. In addition, Saudi Arabia, Israel, and Oman are among the major contributors to high data center development activities in the Middle East data center colocation market. Qatar, Bahrain, and Kuwait are emerging markets that witness significant growth because of digitalization and growth in connectivity.
• In the Middle East, the presence of smart cities in the region also drives data center investments. For instance, the NEOM project in Saudi Arabia is under development as a part of Crown Prince Mohammed bin Salman’s Vision 2030, which will also comprise data center development under a joint venture firm, ZeroPoint DC.
• The majority of Middle Eastern countries have the availability of Free Trade Zones (FTZs); for instance, Oman has free trade zones such as the Al Mazunah Free Zone, Salalah Free Zone, Sohar Free Zone, and Duqm SEZ, which provide multiple benefits to investors, including corporate tax exemption, total exemption of import and export taxes, and local labor recruitment.
• Regarding upcoming power capacity (IT load), Saudi Arabia is dominating the Middle East data center colocation market with an excess of 500 MW of under-construction/announced/planned capacity. The UAE follows Saudi Arabia with over 200 MW of under-construction/planned capacity.

VENDOR LANDSCAPE

• Prominent operators in the Middle East data center colocation market include Khazna Data Centers, Gulf Data Hub, MEEZA, Moro Hub, stc, Turkcell, and Oman Data Park. These providers are making significant contributions to the industry. Notably, Khazna Data Centers and Gulf Data Hub are spearheading growth by developing over 15 data center facilities across the UAE, Saudi Arabia, Oman, Kuwait, Qatar, and Bahrain, set to operational in the forecast period.
• The increase in demand across different regional industries has led operators to sign several M&A contracts and enter joint ventures (JVs) to expand their portfolios, attract customers, and capture a higher Middle East data center colocation market share. For instance, in September 2022, Khazna Data Centers and BEEAH Digital formed a JV termed One Data Center SPV. The newly formed company plans to build a 9-MW data center in Sharjah, UAE.