Data Centres

Capacity offered by providers in London has been in great demand and 2023 is not expected to be any different in that regard. Cloud service providers need data centres to underpin their efforts.

Key Takeaways

1. Despite weaker macroeconomic conditions, demand for data centre space will remain near all-time highs as the largest cloud service providers look to expand their presence in London.
2. Mergers and acquisitions are likely to feature prominently on the data centre landscape, as providers need to expand to meet the needs of their largest customers and the cost to do so has soared. New combinations will be created as a result.
3. Data centre providers are likelier to cancel newer ventures, such as edge data centres, or plans to expand into smaller locales where returns are less certain.
4. Sustainability-related regulation is likelier to be introduced in the UK to ensure data centre providers don’t develop facilities in certain areas of London. Limits on power consumption and district heat reuse may also be mandated.

Continued strong demand for data centres to remain near all-time high

The cost of data centre capacity has soared over the past year, yet demand is expected to remain near its peak in 2023. Microsoft, Google, and Amazon Web Services, collectively referred to as hyperscalers, need the additional data centre capacity to support their plans to offer digital services despite the weaker macroeconomic conditions in the UK. Furthermore, any concerns that the appetite for capacity may be waning in London or abroad, are unfounded in CBRE’s view. We forecast 120MW of take-up in 2023, just below the all-time high (130MW) we believe the market will reach in 2022.

介绍Sustainability-specific监管d

As the data centre industry has grown, the environmental impact of its facilities have become a topic of concern. The industry has developed a higher profile as the importance and level of services, and the pressure its placed on the electricity grids in multiple markets, has grown. The Greater London Authority recently rejected power applications by housing authorities in three West London boroughs citing data centre demand.

To address those concerns, operators have made commitments to achieve net zero carbon across their estates and deploy clean energy strategies. We don’t think the measures will be perceived as sufficient. As such, data centre specific regulations are likelier to be introduced in 2023. Designated areas for data centre development could be implemented in 2023. Similarly, district heat reuse and limits on power consumption may be mandated.

Figure 24: London data centre take-up (MW), 2018-2023F

Source: CBRE Research

Providers to scale back expansion plans

Plans to build in some of the smallest markets in Europe may be put on hold or cancelled altogether in the new year by providers. Uncertain returns in the short-term mean plans to enter some new markets will be scrutinised further, if not cancelled altogether, given worsening economic circumstances. The development of edge facilities, an emerging class of data centres, run a similarly higher risk of cancellation given the expense involved and largely unproven business case behind edge-focused providers.

Spate of data centre provider consolidation expected

We expect a consolidation of data centre providers in the new year as larger cash-rich players will take the economic downturn as an opportunity to subsume weaker competitors.

Data centres are seen as an attractive investment class given the defensive nature of revenue streams and robust associated capital values. However, the risk of tenant flight in a recession or economic downturn is somewhat higher which could lead to the sale of weaker, more inefficient providers to stronger competitors.

CBRE expects several significant platform opportunities to arise in 2023. The providers likeliest to be on the block will represent significant expansion potential, have power secured and a strong management team. It is likely we will witness more activity in smaller, second-tier European markets.