Europe's Data Centre Capacity to Grow 21% by 2027 Amid AI Boom

London, UK - 30 May, 2024: Savills' recent research predicts a significant expansion in Europe's data centre power capacity, which is expected to reach approximately 13,100 MW by 2027, a 21% increase. Meanwhile, international bandwidth usage in Europe is projected to grow at a compound annual growth rate (CAGR) of 31% by 2030. This growth will be widespread across the continent, driven largely by the increasing influence of Artificial Intelligence (AI) on the sector. The European AI market is anticipated to grow at a strong annual rate of 15.9% (CAGR 2024-2030), fueling the demand for more data centres.

Over the next four years, Europe will see the completion of 94 new data centre projects, adding about 2,800 MW to the current capacity. In a report, published by the company, Scott Newcombe, EMEA Head of Data Centres at Savills, was quoted saying that, “Despite the high number of new data centres anticipated to be built by 2027, the market is expected to remain largely undersupplied across Europe. Given the projected expansion of internet bandwidth usage, European data centre capacity needs to triple by 2027 and reach around 22,700 MW in power so there remains a significant supply/demand gap.

“We believe that prime yields, currently standing at 5-6% on the continent, will remain stable for most of the year, with a slight inward movement towards the end of the year as market dynamics evolve.”

According to Turner & Townsend, the average cost of constructing a data centre in Europe rose by 6.5%, reaching $9.1 million per MW (€8.4 million) between 2022 and 2023. Zurich is the most expensive European city for building new data centres and ranks second worldwide, following Tokyo. London and Frankfurt are the second and third most expensive cities in Europe for data centre development.

The surge in demand, coupled with higher energy and construction costs, has significantly increased the average asking prices in European colocation markets. Since early 2022, the prices for 4kW leases have risen by 36%, for 10kW leases by 47%, and for 100kW leases by 51%. Over the next three years, asking rents are expected to climb by 5% to 8% annually.

Lydia Brissy, Director of Savills' European commercial research team was also quoted saying that, “Given the combined challenges of energy infrastructure, sustainability initiatives, scale expansion, and mitigating obsolescence risk, the data centre industry will require significant capital expenditure (CapEx). As a result, rising private equity flows are anticipated in the market as the industry seeks to invest in its core business.”

The projected growth in Europe's data centre capacity signals a robust market opportunity, driven by advancements in AI and increasing bandwidth demands. This expansion is set to attract significant private equity investment, spur technological innovation, and create numerous job opportunities, ultimately bolstering Europe's position as a global leader in the data centre industry.