Europe's datacenter dilemma is that hyperscalers are hogging them all

Space scarcity and soaring build costs send rent through the roof

Demand for datacenter space in Europe outstripped supply in 2023, with hyperscalers snapping up much of the available capacity and construction of new facilities hampered by difficulties in sourcing sufficient power and acquiring available land.

According to a report from commercial real estate outfit CBRE, there was take-up of 601 MW of additional datacenter capacity across the 14 largest markets in Europe last year, but only 561 MW of new capacity was added during the twelve months. This is the second time in five years that take-up has exceeded new supply, the company said.

This imbalance was largely driven by the largest markets, the charmingly named FLAPD (Frankfurt, London, Amsterdam, Paris, and Dublin), where there was 511 MW of take-up but only 467 MW added.

In the secondary market category, there was 90 MW of take-up, but this was topped by 94 MW of capacity being added. This category includes Berlin, Brussels, Madrid, Milan, Munich, Stockholm, Warsaw, Vienna, and Zurich.

Rental rates for leased bit barn capacity have risen considerably over the past two years, the CBRE report states, with build costs being the primary culprit. A separate report last year warned there was an insufficient pipeline of datacenter development in Europe, blaming shortages of available heavy machinery, skilled labor, and raw materials to build them.

However, securing sufficient available power and appropriate land for building are also key challenges datacenter operators face when trying to meet the considerable demand from their largest customers, which also likely contributes to the build costs.

These higher build costs are being passed on to customers through higher rental rates, plus there is continued strong demand for datacenter capacity from the the likes of AWS, Microsoft Google and other giants, which has led to lower availability for everyone else.

As such, CBRE forecasts rental rates to grow at double digit year-on-year for the foreseeable future in the FLAPD markets, for both hyperscalers and enterprises needing extra rack space.

Among the FLAPD markets, London is the only one to have more than 1 GW of total live datacenter space, yet Frankfurt is projected to pass that mark in 2024. London only saw 82 MW added last year, while for Frankfurt it was 135 MW, for Paris it was 101 MW and for Dublin it was 87 MW.

CBRE expects take-up of bit barn capacity to "soar to new heights" in years to come, given the ongoing strong demand from hyperscalers, plus the growing requirements for infrastructure driven by artificial intelligence.

However, the report claims that datacenter providers across Europe are largely unable to accommodate those with AI-specific needs in the near term due to a lack of AI-ready facilities, a shortage of necessary hardware (presumably meaning GPUs), and a shortfall of available power.

CBRE also warns that datacenter capacity is increasingly difficult to source. It claims the supply in FLAPD has almost doubled over the past four years, yet the countries had less lettable space (30 MW) by the end of the year than there was for the same period in 2019.

This is a result of hyperscalers needing to secure capacity to ensure their requirements for growth can be met, the report says, leading to high rates of pre-lets especially in Frankfurt and London, where the biggest of big tech sign up bit barn capacity before a new building has even been constructed.

"Some of the largest American technology companies need ever greater amounts of datacenter space to house their equipment that enables the delivery of their digital services," the report states.

To underscore this, it says that the vacancy rate within those top five FLAPD markets finished the year at an all-time low of 10.6 percent, and that vacancy rates have plummeted almost 10 percentage points over the past four years in the 14 European markets it tracks. ®

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