Vacancy Rates Head Toward Historic Low As Supply Concerns Hit Data Centres
The colocation data centre vacancy rate fell below 10% in the London, Dublin, Frankfurt, Amsterdam and Paris markets for the first time ever in the second quarter as demand for space remains fierce, according to CBRE.
However, in the same report by CBRE and a separate review by Aggreko, the companies warned that energy consumption concerns could challenge the expansion of the lucrative data centre market across Europe’s key cities.
Takeup of 44 megawatts exceeded the 30 MW of new supply, the fourth straight quarter to do so, and the vacancy rate fell in Europe’s top five data centre markets as a result. The vacancy rate across those cities stands at 9.8% and is expected to fall to 7.9% by the end of the year, CBRE’s report says. If that pans out, it will be the fifth consecutive year the vacancy rate has declined.
Strong demand has drawn major players, especially from the U.S., where the data centre market is more mature, to focus on European opportunities. Hines plans to move into the UK data centre sector as it looks to expand into alternative real estate asset classes. Its first European development is in partnership with operator Compass Datacenters for a scheme in Milan.
“We're very actively trying to expand our footprint in data centres,” Hines UK Head Ross Blair said at Bisnow’s UK Real Estate Outlook event in April. “I think there's a tremendous amount of institutional capital wanting to flow into that sector, so we're starting to invest more people hours in that space.”
Fellow U.S. giant Blackstone has highlighted data centres as a major focus and recently announced the acquisition of a site in the north-east of England for a huge new data centre campus. It bought the site through its QTS platform, through which it is investing more than $20B in the sector.
“The scale of the data centre opportunity is immense,” Blackstone Real Estate Global co-Head of Real Estate Nadeem Meghji told Bisnow in an interview earlier this year. “It's the single most exciting strategy we have globally today.”
Starwood has allocated a portion of its next fund to the sector, and earlier this year it paid $850M for a stake in Irish data centre developer and contractor Echelon. Singapore-listed Elite Commercial REIT said it will start converting some of its UK buildings into data centres, which it described as one of the sectors with the highest level of demand compared to supply.
That demand is coming from across the industrial spectrum. Following the closure of the Joint European Torus project, the UK Atomic Energy Authority said it may repurpose its Culham, Oxfordshire, campus for artificial intelligence data centres or supercomputing facilities. It has issued an open tender inviting proposals from organisations that can leverage the site’s high-power infrastructure, which can deliver 144 MW steady state capacity and 575 MW peak capacity.
Yondr Group, a global developer, owner and operator of hyperscale data centres, has opened the first 20 MW phase of a 30 MW building on its London Slough Campus. It is Yondr's first completed data centre in the UK. A second building that will add another 30 MW of capacity is under construction on what is slated to become a 100 MW-plus data centre campus.
However, data centre developers are continuing to struggle with energy infrastructure constraints. In a report entitled Bridging the Energy Gap for European Data Centres, Aggreko warned that grid connection delays and environmental concerns are impacting the industry, causing substantial delays in Tier 1 and Tier 2 markets.
Inefficiencies in energy solutions are leading to increased operational costs because of higher energy bills. Greener and more efficient energy alternatives are required to maintain growth, the report says.
“Despite the huge growth in the data centre sector across Europe, we are keenly aware of the challenges it is now facing,” Aggreko Global Sector Head of Data Centres Billie Durie said in a release with the report. “With environmental, financial, and legislative pressures all at incredibly high levels, there is a chance that these external factors may affect the industry’s expansion.”
Echoing these concerns, CBRE said that hyperscalers’ interest in colocation data centres is particularly high, but providers are finding it increasingly difficult to accommodate their demands because of a lack of available power and land in Europe’s primary markets. Data centre construction is complex in markets where regulation features prominently in development plans.
CBRE anticipates that 646 MW of new supply will be delivered across Europe this year but that takeup will reach 693 MW across the 15 markets it tracks.
“Data centre capacity is an increasingly precious commodity given the considerable demand for space and competition for it. Providers that can secure the necessary resource and build data centres are able to command higher prices for the space,” CBRE Head of European Data Centre Research Kevin Restivo said.
