Without a prominent data center strategy, Europe and some of its existing data centre hubs risk falling behind in critical digital infrastructure. Our data centre hub explores the obstacles and opportunities below.
Data centers: core infrastructure of the 21st century
For most of the past 2-3 decades, data centres and related digital infrastructure have been largely outside of the public view. Already critical parts of our modern lifestyle and economy, from enabling our smartphone use to reducing road accidents and helping with everything else in between, they have sprung up in multiple clusters globally, including Europe, largely as anonymous buildings.
As existing drivers for this build out, like cloud adoption, or increased use of sensor technology, come up against an energy grid already struggling to decarbonise, data centres are increasingly entering the policy landscape and public consciousness.
Added to this, within the space of just a couple of years, AI has leapt from the fringes of public awareness into the mainstream. World leaders are falling over themselves to intone on the revolutionary potential of the technology, and businesses are scrambling to understand and deploy it.
Whether hype or sustainable trend, this use of AI only adds to the already strong demand for growth in data centres – demand that is struggling to be met as data centre operators struggle with access to energy, specialist build skills, and supply chain backlogs.
According to Gartner, worldwide public cloud end-user spending is growing at over 20% and is set to surpass a trillion dollars before 2040.[1]
Data centre infrastructure – critical to meeting such demand – is therefore increasingly pivotal to Europe’s digital economy, underpinning innovation, competitiveness, and the growth of priority sectors like AI, digital health, financial services, ecommerce, defence, cybersecurity, whose players need access to low-cost storage and compute in order to innovate and grow.
Data centres also act as catalysts for growth, since data centre hubs naturally create commercial ecosystems that attract a spectrum of businesses, suppliers, and talent. All of which is spurring frenetic construction of a variety of data centre types and sizes.
According to commercial real estate operator CBRE, the European market grew by nearly 20% year-over-year in Q1 2024, with new clusters emerging in the Nordics and southern Europe, as well as significant development in some of the more established ‘FLAPD’ markets (Frankfurt, London, Amsterdam, Paris, Dublin) – though notably Amsterdam and Dublin are falling behind.[2]
Despite broad growth, Europe lags behind both China and the US in data centre construction. According to recent research, Europe is currently home to around 1,200 dedicated data centre sites[3] compared to the US’s ~5,000, with inventory growth in 2024 of over 24% in North America compared to 20% in Europe. In practice, our work in the sector suggests the European supply chain is struggling to build at higher than around 13% compound growth rates.
These findings are mirrored in investment in AI more broadly, where sums in the US and China far outstrip those in the EU[4], threatening European pretensions to technology leadership. The EU’s claims to regulatory leadership on AI are also likely to suffer if it does not physically host the infrastructure that is AI’s most enforceable dimension.[5]
Given data centres are also relatively power hungry, it is perhaps no surprise that Europe, with its greater emphasis on ESG and the energy transition, risks falling behind. The UK’s new government, meanwhile, wishes to flag that the country is very much open for business from data centre investors.
Strategy urgently needed
Building the digital infrastructure required to realise Europe’s technological ambitions will require a deliberate strategy to overcome the bottlenecks currently holding it back, namely:
- Power: power sourcing and cost is a key challenge for data centre construction globally and nowhere more so than Europe, where grids are struggling to keep pace with expanding demand.
- Regulation: European markets generally offer more complex regulatory conditions than competitor regions, particularly around data privacy, environmental standards, and planning laws, which can slow down data centre construction.
- Land: typically more expensive and harder to secure than in competitor regions.
The Nordics set a clear example, having become preferred locations for AI-driven data centres in recent years through the deliberate promotion of strategies emphasising their abundant renewable energy and cooler climates (which lower operational costs) alongside deliberately streamlined permitting processes and relatively benign tax treatment.
Today, hyperscalers are adopting a Nordic first strategy, which is projected to take the Nordic data centre construction market value from US$1.88 billion in 2023 to US$3.18 billion by 2029.[6]
Of course, not all European markets are blessed with the natural features that power the Nordics’ appeal to builders, creating a risk that southern and central European markets see the growth of their local cloud, edge computing and AI ecosystems stall. But this risk can be mitigated by an EU-level strategy that either promotes and facilitates construction elsewhere in the union and / or gives the clear top-down steer to wavering Member States that data centres are critical infrastructure.
Policymakers have a wide range of tools at their disposal, including tax and talent incentives, but need to do more on encouraging clean energy investment – of particular appeal to tech companies hungry for decarbonisation solutions.
Case study: Equinix
Equinix is a global digital infrastructure company that specialises in providing data centers, colocation services, and interconnection solutions to organisations in all sectors including finance, manufacturing, retail, transportation, government, healthcare and education. This means that many of its sites are not the large, power-hungry type of data centres that have increasingly entered the public consciousness.
Through its network, Equinix offers infrastructure for managing and connecting clients’ systems, cloud services, and networks, facilitating client digitalisation, compliance, and security. Its activities objectively yield benefit to economies across Europe, a partial snapshot of which, based on our analysis for Equinix, is below:
| All values 2022 or 2023 Selected countries |
Jobs from Equinix’s employment and generated from Equinix’s value chain spend | Contribution to household income from Equinix’s employment and value chain spend | Annual contribution to GVA arising from Equinix’s customers’ activity | Contribution to national economic output arising from Equinix’s direct and indirect spend | Contribution to public funds in taxes and other contributions |
|---|---|---|---|---|---|
| Germany | ~5,000 | €233m | €214bn | €927m | €27m |
| France | ~1,500 | €86m | €286bn | €203m | Not disclosed |
| Ireland | ~370 | €19m | €15.8bn | €35m | €13m |
| Spain | ~1420 | €70m | €62bn | €206m | €30m |
| UK | ~5,000 | ~£305m | £142bn | £820m | Not disclosed |
The nuclear option
Energy consumption is likely to be a salient challenge to any serious EU, Member State or UK strategy. Data centres are getting increasingly energy efficient, but such is the demand our lifestyles dictate, that data centres almost single-handedly are reversing the decades old trend of declining electricity consumption.
In the case of the UK, known data centre projects in pipeline alone require around a 5% increase in the grid’s total capacity. Failing to build that capacity will result in a gap most likely to be filled by gas, which would slow progress to net zero goals. Only this year, Elon Musk’s xAI was reported to have installed gas generators without a permit at a supercomputer facility in Memphis,[7] generating significant local friction and providing an illustration of the problem that will only have greater scrutiny in Europe.
It comes as no surprise in this context that Microsoft is actively exploring small modular nuclear reactors (SMRs) as a way to square the energy/carbon circle.[8] Such reactors generate electricity through nuclear fission, carbon free, and can be deployed incrementally to meet specific energy demands. Critically, their smaller size means they can be located flexibly in a wide range of areas, and scaled quickly to meet a data centre's evolving demands – and, it is hoped, without the build and decommissioning costs, and operating risk, of conventional nuclear.
Conclusion
Technology leadership is indispensable to Europe’s geopolitical and social goals for the coming decades, but impossible without adequate digital infrastructure. As AI and supercomputing grow in salience, it is critical that the EU develops a coherent strategy for data centre provision, considering power, permitting, renewable energy, and incentives.
Only by doing so can it retain the talent, attract the foreign investment, and foster the innovation needed to ensure it remains at the forefront of the global digital economy. The same applies at the country level, with those EU Member States’ planning systems that regularly decline data centre connections, risking sending a wider signal that they are closed for business.
Balancing energy transition obligations, while still staying relevant for key digital infrastructure, is a challenging, but not impossible task.
Policy makers and planning approval authorities can work on clearer ‘rules of the game’ for investors and developers, seeing data centres and their ability to bring investment in low carbon generation and grid storage as part of the solution, rather than part of the problem.
Investors and developers, for their part, can be more proactive in bringing grid solutions to their planning applications, and articulating the wider benefit of data centres, to relevant stakeholders.
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