RLB’s latest data centre report revealed that commissioned capacity has surged by nearly 300% since 2023, with operators averaging 47MW each last year.
It’s this extraordinary growth that Nikki Venetsanakis, RLB UK & Europe’s Head of Advanced Tech, discussed with Property Week, exploring the opportunities and challenges facing the sector as it scales up to meet soaring demand, and sharing insights into what the future of data centres may hold.
Nikki Venetsanakis, head of advanced tech for the UK and Europe at property consultancy Rider Levett Bucknall (RLB), says:
“We’re in another Industrial Revolution, and digital infrastructure is ultimately what the new revolution is,”
She argues that people won’t give up putting their photos and stories online or stop using the internet for tasks such as banking. She says:
“The use of data is just going to get bigger and bigger,”
First cloud storage and then artificial intelligence (AI) have driven the demand for data in recent years. And with that demand comes a pressing need for data centres for storage.
A report published by RLB earlier this year shows that the sector across Europe is booming, but that 70% of operators and contractors believe the construction supply chain is struggling to keep pace with demand.
Separate research from built environment consultancy Barbour ABI, published this summer, reveals a planned pipeline across the UK – mostly in England – of 94 projects worth at least a combined £36.4bn. Among them is Google’s new facility at Waltham Cross, Hertfordshire, which opened last month, and the £10bn Blackstone-owned QTS project on a former power station near Blyth, Northumberland, previously earmarked for Britishvolt’s electric car battery factory.
Other schemes under construction include Pure Data Centres’ 90-megawatt facility at Brent Cross, north London, which will include what is claimed to be the world’s largest living wall.
So how do data centres compare to traditional industrial and logistics (I&L) developments, and how much further can the subsector grow? Well-known industrial developers, such as Goodman and SEGRO, have moved into the data centre space.
SEGRO, well known for its industrial properties, already has more than 30 data centres on its estates and plans to expand its pipeline across Europe. It has been in the data centre business for 20 years and, like other traditional developers in the space, has evolved its business model.
To date, SEGRO has only let shells for the centres, but in March it announced a joint venture (JV) with Pure Data Centres to develop a fully fitted 56-megawatt data centre in Park Royal, west London.
The JV is still working on its planning application for the scheme. Gross capital investment is expected to be around £1bn, and it is hoped it will deliver 9% to 10% net yield on cost.
Pilsworth says the REIT targets a development yield range between 8% and 12% from its data centres.
“It obviously is within a range of the yields you’d expect from real estate development, but certainly it’s a very attractive return,”
He adds that it is also an appealing market because customers generally want long leases.
Better returns
According to CBRE, around 80% of data centres in the UK are located in the London area due to the capital’s high-quality fibre connectivity, skilled workforce and dependable energy supply.
However, in instances where they are being built for AI companies, they may not always need to be situated close to major cities. This gives the opportunity to build them in new places, such as in north Lincolnshire at Humber Tech Park, which developer Greystoke says was the UK’s first dedicated AI training data centre to receive planning approval in August 2024.
Last month, the government designated an area of the North East, including the QTS data centre site, as an AI Growth Zone. However, without action to lower the cost of power for end users, the area may struggle to attract tenants, says CBRE head of data centre research Kevin Restivo. He argues that the UK risks losing out to the Nordic countries and to Spain and Italy when it comes to attracting AI firms.
Kevin comments:
“The cost of power in the UK is an inhibitor to growth,”
“It’s relatively high compared with virtually any country in western Europe. It’s an issue tenants and developers alike will need to address before a lease of any kind is signed.”
UK appeal
Venetsanakis also believes that the UK remains attractive for data centre development and that logistics-focused developers, especially those with decent amounts of land, are well placed to cash in.
“There is a capacity shortage, but some very smart people are seeing this and know they can take action,”
Nikki says, adding that the UK government declaring data centres as critical national infrastructure is a helpful move.
As well as their power consumption, the centres have drawn environmental critics’ attention for the vast water consumption needed to cool them. But Pilsworth says modern ‘closed-loop’ cooling systems mean this is becoming less of an issue.
Venetsanakis adds:
“The innovation that’s going into these types of facilities is like any type of science experiment – you do the experiment, you figure out how it works and then you start rolling it out into all sorts of other things.”
By working on new technology both in computing terms and in building design, she says that:
“Data centres are shaping the future of infrastructure while underpinning exactly what the future digital economy is going to look like.”
This is abridged version of a special supplement in Property Week. To read the full article, please click here.
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