Demand for data centres in the UK continues to soar as more and more information is stored digitally. But significant challenges remain for those developing them; the power-hungry nature of properties of this type, and their impact on the National Grid, has left schemes facing long delays.
Developments in the data centre hotspot of Greater London have been particularly badly affected. Scott Newcombe, head of property agency Savills’ data centre advisory team for the EMEA region, says: “London is one of the largest markets in the world, number one in Europe, but the city has become incredibly constrained in terms of power. That’s created a problem for cloud service providers. In the west London market, they’re looking at maybe eight years to secure significant power [supply].”
As a result, developers and operators are looking beyond traditional data centre clusters such as Docklands, Park Royal and Slough. Lottie Tollman, head of occupier representation for London within Cushman & Wakefield’s EMEA data centre advisory team, says developers and operators have become “location agnostic” when it comes to purchasing potential sites. “It’s everything, everywhere, all at once,” she says. “That’s how it feels at the moment. Location has become less of a factor – it’s more about the gold rush for power.”
Location has become less of a factor – it’s all about the gold rush for power supply
Lottie Tollman, Cushman & Wakefield
One eye-catching deal in this gold rush was US private equity giant Blackstone’s £110m acquisition last month of the former Britishvolt site in Northumberland. The firm plans to create a data centre campus on the industrial site previously earmarked for a £3.8bn gigafactory.
Tollman believes Blackstone was attracted by the scale of the land and the power available there; the site will reportedly be able to tap into local green power generation, including from offshore wind farms.
Political support needed
But data centre development is not just about finding the right location and size of land plot, Tollman adds. “Political support and support from the local population is also important,” she explains. “It’s about the understanding local planning authorities have about the benefits data centres bring to the local area and economy.”
Tech giants are getting in on the rush to secure data centre sites. Earlier this year, Google revealed plans to invest £790m to develop its first UK data centre at a 33-acre site in Waltham Cross, Hertfordshire. It is also reported to have paid £88.2m for a 52-acre plot at North Weald Airfield in Essex, just over 10 miles to the east of the Waltham Cross site, to develop a data centre campus.
In February, Microsoft said it planned to open a data centre in North Yorkshire, while last year it started building a £1bn data centre in North Acton in west London.
Amazon, meanwhile, has also ramped up its investment in UK data centres in the past two years through its cloud service provider AWS.
Savills’ European Data Centre report, published in May, suggests that artificial intelligence (AI) has had a “meteorite impact” on the data centre industry. For example, AI applications, particularly those using deep learning and complex algorithms, require substantial computing power. This, in turn, is driving demand for bigger data facilities equipped with larger server farms and enhanced storage capacities.
A major reason for delays is the lack of available general contractors
Rajesh Sennik, KPMG
As a result, data centre operators and developers are targeting new locations.
“We are seeing interest in AI and machine learning deployments in Bridgend, Cardiff, Leeds, Northumberland and much further north,” says Savills’ Newcombe.
“The reason for that is primarily in those less data centre-centric locations, land is more readily available and cheaper.”
But most importantly, he says, a “glut of power” is available in these locations. “The most popular locations we’re seeing are former steelworks, decommissioned power stations and heavy industrial areas, because generally they have power on site or can get power relatively quickly – and large amounts of it.”
Scotland ‘a hot location’
Scotland is also now a hot data centre location, Newcombe adds. “There’s a mass of offshore wind renewables available in Scotland and even more coming online,” he says. “So, power is not an issue, land is cheap and it’s all readily available on a massive scale.”
However, the sector still faces some major challenges. One issue is the difficulty in getting data centres built, with labour and equipment supply problems continuing to stall schemes.
Energy boost: plentiful renewable power sources make Scotland a hot location for data centres
“We hear stories all the time of bus bars or high-voltage boards, some quite basic bits of kit, that are just really hard to get hold of,” says Tollman. “Unless developers or operators have very strong partnerships with their supply chain, they just have to wait patiently.”
Rajesh Sennik, value creation practice lead and technology, media and telecoms strategy group lead at accountancy firm KPMG, says he is aware of around 30 data centre projects across Europe that are delayed. “One of the major reasons is the lack of available general contractors,” he says.
Sennik confirms that a lack of “critical equipment” to fit out buildings is holding data centre schemes up. To tackle the problem, he says some developers are booking production slots with equipment suppliers around two years in advance.
Meanwhile, the sheer amount of energy that data centres use has been a problem for some time, not just in terms of securing power supplies, but also because of concerns about the industry’s environmental impact. Since 2010, the number of internet users worldwide has more than doubled, while global internet traffic has expanded 25-fold. In essence, data centre developers are simply responding to this rapid growth in demand.
Operators, however, are taking steps to use renewable energy and reduce emissions, according to Newcombe: “There’s lots of work and technology going into ensuring that [data centres] are as eco-friendly as possible, while being huge consumers of power.”
Data centre occupiers pay the highest rents and a premium for the land
Scott Newcombe, Savills
This can involve using more efficient cooling systems and ensuring that renewable energy sources are used, he adds.
Making data centres more environmentally friendly also makes financial sense. “The more energy efficient the data centre is, the more attractive it is to occupiers, as it is cheaper to run,” says Newcombe. “So, developers have a vested interest in them being as clean and efficient as possible.”
However, concerns remain about data centres’ impact on their local environment. Two years ago, the Greater London Authority warned that future west London residential developments could be delayed because the electricity grid had run out of capacity to support new homes, and added that data centres were partly to blame due to the number in the area and their use of “large quantities of electricity”.
A level playing field
However, Tollman believes data centres should not be seen as pariahs. “It’s up to residential developers to make applications for the power that they need, as much as it is for data centre developers to make an application,” she says. “It’s a level playing field.”
Nevertheless, she concedes that the data centre sector could do more to clarify the benefits such schemes bring to an area. “There’s an education piece that data centres, as a sector, need to do for the wider population,” she says. “But the fact that we’re seeing more in the North is really helping develop a ‘northern powerhouse’ political story. A lot of these powered land sites can be in areas that previously had heavy industry.”
Developing data centres still makes financial sense, as operators tend to pay more than industrial and logistics occupiers, with rents of £40/sq ft to £45/sq ft not uncommon in London, one industry source says.
Newcombe will not be drawn on exact rents but says: “They pay the highest rents and will pay a premium for the land. They definitely pay more.”
Savills’ recent study reveals rising demand for data centres coupled with escalating energy and construction costs have caused a “significant surge” in average asking prices across European markets. The firm anticipates a “continued rise in rents” amid a shortage of available sites for new schemes.
So, while the fundamentals remain strong for data centre developers and investors, for occupiers, finding the right site at an affordable price will remain a challenge.