There’s a common misconception that it was the pandemic that crystalised data centre demand as everyone moved online. In fact, the sector has been around for the past 20 years, with a big uptick in cloud computing, digital transformation, and the move away from on-premises facilities acting as the real catalyst for growth.

This saw larger-scale data centres spring up in core markets across Europe, in locations including London, Paris, Frankfurt, Amsterdam and Dublin. Fast forward to today, however, and the geography is changing. 

Why are data centres leaving core markets? 

The key issues causing data centre migration from traditional hotspots is the cost of land and power constraints. We’re seeing power moratoriums in many  core markets, meaning a temporary suspension of access to the required energy to run these sites, or lengthy delays in delivery due to grid infrastructure re-enforcements. This means it’s difficult to make decisions given there is no line of sight in terms of power accessibility. In West London, for instance, power is unlikely to be delivered until 2030-2032, with many large cloud service providers with significant data centre networks, or Hyperscalers for short, simply unable to wait that long. 

Considering the cost of land, we’ve seen prices in London as high as £17 million per acre, making an operator case impossible, when working within the financial parameters dictated by their largest Hyperscale tenants.

What’s more, with digital transformation increasingly occurring in emerging markets, there’s demand for cloud services in new locations. We are also seeing changes in the way that cloud services, content and media are provided and the advent of subsea cable delivery has opened up new markets in Central and Eastern Europe, the Mediterranean and Africa. 

Where are they going?

We are now seeing development in places like Prague, Genoa, Munich, Dusseldorf, Berlin and Milan, as well as Cambridge, Manchester and Birmingham here in the UK. In many of these locations there’s still an early mover advantage in terms of cost, giving significant upside for those prepared to explore these markets. With a focus on re-development of industrial and logistics land or buildings, it’s far simpler than fighting for restricted, expensive, options in more established hotspots. 

This also brings the delivery of the cloud, content and media closer to the consumer, with lower latency meaning better service.

These new hotspots are moving very quickly in terms of growth, with development in Milan and Berlin booming. The former is already seeing supply issues in a market that (in terms of wholesale development) is less than two years old. This means that there is the chance that it could face similar challenges to those situated in traditional locations. 

What next?

Unlike other sectors, the data centre market is largely insulated from wider macro-economic factors, which means it’s forecast to grow at a significant rate over the next five to 10 years.

For this reason we are likely to see the development of more ‘edge’ data centres (situated close to the edge of a network, or in less obvious traditional hotspots), both in non-core markets and deployed across multiple locations, which were not previously of interest. 

One of the largest influencing factors on the horizon will be the delivery of AI. These are huge deployments (even by Hyperscaler standards) as even one of these will likely require a single site of more than 100 acres to provide up to 300 megawatts. For context, that is roughly equivalent to the Slough estate, a key London data centre hotspot. 

AI is also (largely) location neutral as it’s not latency sensitive in the same way that live cloud services are. We should see this translate into Hyperscalers simply deploying wherever there is land and power at scale, for the right cost.

Further information

Contact Scott Newcombe

Savills: Data centre industry needs to attract new talent to keep up the sector's growth trajectory