I come from the south of Mexico (Tabasco) and I’m a huge baseball fan. Ever since I was a kid, I supported our local baseball team, the Olmecas. Historically, we’re a small team used to defeat with sporadic happy moments.
This weekend, we got to face the team with the most wins in Mexican baseball history (16 times) and the strongest opponent in the league: the Mexico City Devils.
The statistics? 10 to 1. We have lost 83% of the time when we visit them.
Against all odds, I decided to go to the stadium with my wife on this beautiful Saturday afternoon. But how this is related to the Latin American Data Center market? Well, it’s all about facts and hope, but first, the facts.
Over the next five years, Latin America will be the fastest-growing market in the world for data center development, with some predicting growth of 250% over that period. The penetration of smartphones for streaming, videos and cloud-based applications, combined with the growth of businesses in a connected, globalised world are driving demand here.
The last few years have also seen the size of facilities increase significantly. For instance, last year, Layer 9 started construction of a new 96MW data center campus in the state of Guanajuato in Mexico. And Scala opened Latin America’s largest single-tenant data center, with an 18MW capacity, in Barueri city, Sao Paulo state, Brazil.
The region has some strong home-grown data center providers. Among them are Scala, Ascenty and Odata, which all originated in beautiful Brazil (seriously, go visit!), and Mexico’s Kio, which was acquired by global infrastructure investor I Squared Capital in late 2021. All are expanding through both acquisition and development. Global players, such as Equinix, AWS, Google and Microsoft are all either established or entering the market.
For new entrants to Latin America’s data center market, it can be a steep learning curve. Though we are so close – and connected – to North America, the markets here are quite different to any others around the world.
New region, new rules
Latin America’s hottest markets are centered in Sao Paulo state in Brazil and Mexico’s Bajío region which is made up of Guanajuato and Querétaro states. Chile’s market, concentrated on Santiago and Valparaíso, is set to expand fast, enabled by a plentiful supply of renewable energy and good connectivity with the US and, shortly, Asia too. Colombia is emerging fast too with moves such as Equinix investing US$45m to build its second data center in Bogota, and Kio purchasing a 6MW facility in the capital, with additional land to build more capacity.
Though development programmes often span several countries, there cannot be a one-size-fits-all approach since each country has its own characteristics and often rules vary from state to state. This is a region of over 640 million people after all.
One common difference is that in many Latin American countries, energy and infrastructure are largely state-owned and controlled. This impacts issues including permitting processes, availability of power and timeframes for delivery of energy or new infrastructure such as roads. Brazil and Chile, however, buck this trend for electrical energy with private company Electrobras responsible for just under 40% of Brazil’s electricity transmission and ENEL dominating in Chile.
New players must also factor in the sort of differences that every new region throws up such as a localized building standards and material specifications. Another challenge here is that, since local supply chains are relatively young, it can be difficult to source contractors with both the necessary local knowledge and data center experience.
Sadly, there can also be a risk of corrupt behaviour in some Latin American markets, which can trap newcomers. It is absolutely possible to do things properly. Project planning and scheduling should take into account the timescales involved for permitting and other activities rather than being tempted by ‘fast-track’ options, a common mistake for new players in the region.
The risk landscape here is different to other markets and must be mapped out and understood so that decision-making is properly informed. Our advice would be to assemble a team with the right competencies to plan and project manage developments, balancing local knowledge with data center-specific experience.
These are definitely exciting times for the data centre market in Latin America.
However, as in any sector or region, fast growth and high returns often mean higher risk. It seems that for the first time, Latin America is stepping up the game. With nearshoring and massive market demand, we can hope for a better tomorrow.
Today my team won in a fantastic 14-2 against the powerful Mexico City devils, defeating all odds. The summer sun in this part of the world is shining bright. Tomorrow will be the definitive third game in the series and I have nothing but hope. Life is what you make of it.
Data Centre Trends 2023
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