Inside Blackstone's £10B UK Data Centre Megascheme

The scale can be hard to comprehend.

Blackstone’s £10B ($13M) deal to build a data centre campus at Cambois in Northumberland, north-east England, will see the U.S. firm invest more in one deal than the portfolio value of the UK’s third largest REIT, British Land.

The 5.8M SF of buildings that will be constructed are roughly the same size as 10 Gherkin London office towers. 

It is a deal bigger than most European property companies.

So how exactly are such astronomical figures reached, and why did Blackstone choose the little-known site of a former coal-fired power station for its first UK data centre project and one of its largest European investments? 

The deal was held up as an example of global capital targeting Britain at this week’s Labour government international investment summit. Bisnow outlines Blackstone’s strategy, including how it might ultimately exit the project, leasing plans for the scheme and how it will secure the 1.1 gigawatts of power it will need. 

Birth Of A Data Centre

“What attracted us is the fact there are not many other sites in Europe that give us the size and scale of Cambois,” QTS Chief Growth Officer Tag Greason said at a meeting of Northumberland County Council on 30 September. 

Agreement was also reached with Northumberland County Council on the creation of a £110M fund to invest in local jobs and training programs. 

QTS is the data centre owner and developer taken private by Blackstone for $10B in June 2021, and it has a pipeline with a potential end value of $92B. The Cambois scheme is QTS's first project in the UK and its second and largest in Europe.

“We can go into a region and build one building, and setting up the infrastructure for that will be equally as hard as building a whole campus,” Greason said of QTS, which will develop and operate the site.

Blackstone bought the 235-acre site on the Northumberland coast in April after battery-maker Britishvolt's plans to build a massive factory at the location were foiled by its January 2023 administration.

The campus will consist of nine or 10 buildings totalling 5.8M SF, or 580K SF to 644K SF each, documents filed with Northumberland County Council show. The site aims to provide tenants with power amounting to 750 megawatts — the measurement of capacity used in the data centre world, as opposed to square footage. Once heating, lighting and cooling are taken into account, the site will require 1.1 GW. 

Blackstone's project will be a turnkey data centre scheme, so rather than just building a shell and core, QTS will install all of the power cables and systems, fibre-optic cables, heating and cooling systems, and security systems a data centre occupier would need to operate a building.

All of this equipment is expensive, requiring upfront outlays not seen in other sectors. Some of that is due to the amount of heat generated by data centre servers and the resulting need to cool them. Power and fibre optics that run uninterrupted also come at a high price, as power or data outages spell doom for Big Tech companies. 

And data centre construction costs are rising, much as they are industrywide, touching $10M (£7.5M) per megawatt, according to Savills data.

Once remediation work on the former power plant is taken into account, along with the creation of the £110M fund, it is easy to see how costs can reach a figure like £10B for a project of this size.

That investment doesn’t include the servers that will operate within the data centres, which are paid for and operated by the tech occupiers. Documents filed with the council say the tenants could spend £5B to £10B on their own equipment.

Move Faster, Get Bigger

But Blackstone and QTS are bullish on their ability to lease up the site and make a significant profit on that £10B investment. 

“Our customers are saying to us, ‘Can you move faster than we can? Can you create a bigger campus than we have now?’” Greason said at the September council meeting, citing Google, Microsoft, Amazon, Oracle and the U.S. government as some of QTS’ large-scale tenants in the U.S., where it has 60 operational data centres.

Greason said AI will likely add to demand. Even without that, the growth in cloud-based services and data usage will see demand from data centres surge over the next decade, he said.

The campus will be built on a phased basis, with planning application expected to be submitted in November. If planning is achieved by the middle of next year, work would start on-site in the second half of 2025. The campus is likely to take about nine years to build out, QTS said in its public consultation document, 

Greason said the campus would likely host a mix of larger tenants that would lease whole buildings, even multiple buildings, and smaller tenants that would colocate within buildings. 

“It’ll be a mixture of large single tenants, what we would consider an anchor tenant, that will come in and get the project up and running, taking maybe one, two or even five buildings,” he said. “That is my goal, so we have an anchor tenant that helps create long-term, predictable growth here at the Cambois site.”

Those tenants could take leases of up to 20 years, Blackstone Head of Real Estate Acquisitions Europe Samir Amichi told the Northumberland council.

It is those leases that justify Blackstone's huge investment.

A 20-kilowatt rack can mean an annual expense for a tenant of about £52K, according to data from JLL. Extrapolated out over a campus that will provide 750 MW, that comes to a bill just shy of £2B once the scheme is fully leased. 

Consistent access to large amounts of power is the biggest factor for any data centre developer. Without it, a scheme is essentially useless.

Greason told the meeting there was still “a lot of work to do” to make sure the scheme has “predictability” of power but that QTS and Blackstone were confident it would be achieved. 

The site is close to the point where a subsea cable from Norway enters the UK, providing one source of renewable energy. A nearby electricity substation draws electricity from Scottish wind farms to the English grid, a source with potential for more capacity, Blackstone said. A planned wind farm could also be built off the nearby coast by energy company SSE. 

The campus's location in a relatively remote part of north-east England, far away from London, the UK’s largest source of data demand, might seem a strange one.

But sites of this scale, with access to power and labour, are not readily available near the capital. And while latency — the time it takes for data to travel from a centre to a user — is a key issue for data centre location, it is increasingly common for large campuses in far-off locations to serve urban populations, Blackstone said. 

Asked what the firm’s exit strategy for the campus might be at the council meeting, Amichi said Blackstone is a long-term owner of the project and that he “wasn’t focused on that for at least the next half decade.”

If and when it does come time to sell, QTS being floated as a public company is one exit option, Amichi said. Blackstone could also continue to manage the company or its assets by transferring them into a different investment vehicle. Individual assets could also be bought by the tenants, he added.

“If we’re right about the tailwinds for this sector and the need to create the infrastructure to support the growth in this sector, then we know our investors will be interested in owning these assets themselves,” he said.

“If you asked any institutional investor what sector they want to own assets in right now, it’s data centres.”