5 growth opportunities for data centers in the Middle East5 growth opportunities for data centers in the Middle East

The importance of data centers in the Middle East

Data centers in the Middle East continue to play a very significant role in the digitalization of local economies. They drive further investments in fiber infrastructure, create additional employment opportunities and are responsible for international business expansion. In this article I will highlight key growth strategies and trends that data center operators must capture, in order to continue to monetize the forecasted growth of the data center market.

Saudi Arabia and United Arab Emirates leading data center growth in the Middle East

The Middle Eastern data center market is forecasted to grow by a compound annual growth rate (CAGR) of 7% until 2026. Both the Kingdom of Saudi Arabia and the United Arab Emirates (UAE) will continue to play an important role in data center development in the region.

1. Cloud and hyperscale data center development

The demand for proximity of cloud data and content close to the end-users is driving data center growth in the Middle East. Saudi Arabia and the UAE are leading that growth by a CAGR of 10.16% and 7.34% respectively till 2028. Data center operators in these countries have an opportunity to facilitate large cloud platforms to expand. Especially since local expert market and regulatory knowledge is crucial. Both Saudi Arabia and the UAE are very well positioned to continue to build powerful hyperscale data centers to meet large wholesale customer requirements.

Physically designing, building, managing, operating, and maintaining a modern data center is challenging. Large wholesale customers will seek close partnerships with local data center operators, who can help them expand fast in the region. By landing these (cloud) provider customers, the local data center operators will benefit from the magnetic effect of their presence in their data centers. This draws in additional customers such as local enterprises, service providers and system integrators, who all wish to be close to where these strategic providers are located. This magnetic “pull” effect will spark even further data center growth in the Middle East.

Local governments like in Saudi Arabia and the UAE can stimulate the growth of hyperscale data centers in the region. For example: By providing low tax on power and other sponsored initiatives to reduce operating costs and legal complexity for international hyperscale (wholesale) data center customers.

2. Significance of terrestrial and submarine cable systems for data center growth

Data center operators in the Middle East should plan future expansion and proximity close to existing and planned international fiber cable systems. Winning the terrestrial and submarine cable landing stations and building the proximity data centers associated with them is a key driver for local data center growth.

Global carriers, content providers, content delivery networks and cloud providers buy or lease capacity on such cable systems for their international networks. Offering direct or nearby access to such cable systems will draw in a lot of new providers and other parties, who wish to connect with these providers.

Local governments in the Middle East should fund and facilitate the expansion of such cable systems to their countries, either as final landing stations or as stops along the cable route. This strategy will fuel the growth of data centers in the region and the continued development of Saudi Arabia, and the UAE as established global cloud and connectivity hubs.

3. Magnetic content and strategic cloud providers in data centers

As I mentioned in the first opportunity it is important to win hyperscale data center customers. I also would like to point out the strategic importance of winning public cloud on- and off-ramps. What I mean by this is the main regional network aggregation points for all cloud traffic in the region. At these interconnection points, all cloud traffic is gathered and then sent to the main public cloud data center serving the entire region.

Large public cloud providers like Microsoft, Amazon Web Services and Google Cloud all use such points often referred to as “ExpressRoute” or “Direct Connect” points. Winning and investing in such strategic network gateways will stimulate further data center growth. It will attract enterprises or service providers with latency sensitive data or applications, who wish to sit close to these cloud network gateways.

Winning the regional public cloud interconnection points also offers direct exposure of the local data centers to these large international cloud platforms. Where a successful initial smaller deployment can open up discussion for a larger wholesale cloud platform in the future.

4. Rise of edge data centers driven by industrial IoT and 5G mobile connectivity

The rapid growth of the Internet of Things (IoT) industry powered by 5G mobile connectivity is asking for data processing closer to the edge. Meaning the actual locations where the data is collected and requires real-time processing, for example near 5G mobile cellular towers. This offers new business opportunities for smaller data centers also called edge data centers. Another trend sparking the demand and growth for local data centers is artificial intelligence and big data analytics.

As the demand for data centers is shifting from the core city centers to such edge locations, governments can help facilitate the trend by investing in metro fiber networks and reliable power grid infrastructure. Governments, municipalities, power grid operators, fiber providers, mobile operators and data center operators should collaborate on a group level to meet the growing demand for real-time edge data processing. Countries like Saudi Arabia and the UAE are both examples of successful nations driving this digital transformation for many years.

5. Shift towards hybrid and multi cloud enterprise IT-strategy in the Middle East

According to a recent report from Gartner the global market for SASE (Secure Access Service Edge) will increase by 39% in 2023. Enterprises across the Middle East are increasingly using cloud-based services and applications. This fundamentally changes the IT-landscape from a centralized data center, security perimeter and network to a decentralized cloud-based network. SASE network technology is therefore a significant trend for data centers in the Middle East.

Data centers should have a clear strategy on who are the key SASE network, security, and cloud integrators for their region. Having SASE ecosystem providers present in the data centers and maintaining a strong relationship with them, can be key to attracting new customers in the data center. But it can also be a reason to mitigate churn risk for existing data center colocation (enterprise) customers. As these enterprises continue to migrate more services to the public cloud, they may need less physical space and power in the data center. Having the right SASE cloud and network providers in the existing data centers will keep a physical data center presence relevant. It can help to reduce churn in existing colocation data centers.

Final thoughts – Middle East data centers growing strong

The data center growth potential for both Saudi Arabia and the United Arab Emirates continues to look very positive. Access to affordable and reliable power sources, presence of international cable routes and a strong government support are driving the positive outlook. This puts Saudi Arabia and the United Arab Emirates on top of the list, for international providers looking for the best data centers in the Middle East.

By GJ

Hi my name is GJ. I like to create content on WordPress and YouTube in the field of car detailing, IT, product tests, travel and career. I’m also a freelance SEO writer, business development and sales professional - Specializing in data center colocation, IoT and global connectivity. I provide interim management and IT consulting services.

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