Power shortages hold back data centres
A worldwide shortage of available power is inhibiting growth of the global data centre market.
Sourcing enough power is a top priority of data centre operators across North America, Europe, Latin America and Asia-Pacific and is driving power and accelerator chip designers, as well a centre designers. to increase efficiency.
The rapid growth of artificial intelligence—along with other modern technologies, such as streaming, gaming and self-driving cars—is expected to drive continued strong data centre demand. This will spur innovations in data centre design and technology as operators aim to deliver the capacity that meets the increased power density requirements of high-performance computing.
Northern Virginia remains the world’s largest data centre market with 2,132 megawatts (MW) of total inventory, while Silicon Valley is also struggling with data centre capacity.
In Europe, data centre supply grew year-over-year in Frankfurt, London, Amsterdam and Paris (known as FLAP) as providers work to meet the strong demand across most top European markets. There are significant data centre developments this year, despite the power availability issues. However, most new supply will be delivered in London and Frankfurt.
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More supply is coming throughout the year, though the vacancy rate is expected to remain low as demand will likely remain strong. Demand in Frankfurt is mostly driven by hyperscalers, CSPs and, secondarily, by international enterprises and content providers.
Frankfurt
Recent regulatory issues have significantly impacted the German market’s data centre industry. Pending legislation would mandate how local data centres are run, including required operating temperature ranges. Higher required operating temperature ranges in data centres may cause equipment to fail or malfunction. German regulators also want data centres to harness excess heat for warming residential homes.
These potential requirements have major cost implications and would significantly impact how local facilities are designed and operated. This legislation, introduced last year, was preceded by the City of Frankfurt’s plan to limit developments to certain neighbourhoods where data centres are already located.
Operators in search of power, available land and potentially lower taxes are considering municipalities outside of Frankfurt like Hanau, Rüsselsheim and Groß-Gerau, despite higher power prices. A lack of suitable land in more heavily developed submarkets of Frankfurt and advancements in connectivity have made areas further afield an option.
A still-pending new energy efficiency law could complicate data centre providers’ operations by increasing compliance costs, adding significant expense to doing business in the city. Also, operators that did not secure fixed prices last year before energy prices jumped have incurred significantly higher power costs and could suffer a worsened competitive position.
Data centre inventory
London
Power is also increasingly difficult to secure in London from the transmission system operator and a key electricity substation upgrade in the western corridor has been delayed. As a result, securing power from the grid operator is almost impossible for the next few years. This is a problem for the hyperscalers, given their desire to expand their availability zones in the western corridor.
Amsterdam is poised for growth through 2023, despite a high-profile moratorium on large data centre builds implemented last year. The city is still attractive to many corporations utilizing technology, given its history of hosting organizations in connectivity-rich facilities. However, the market is not growing at the rate of the FLAP and Dublin peers. A national moratorium on large-scale data centres and a lack of power for new facilities is hindering development.
Amsterdam
Securing power is a challenge in Amsterdam, like in every major European market. It is particularly difficult to develop land for data centres in Schiphol, the Amsterdam region that contains notable hyperscaler availability zones.
A key electricity substation in the submarket will not be upgraded for years, which could lead organizations to look else-where for capacity. As a result, Amsterdam may also not be seen as an ideal market for providers planning to build new facilities. Another notable market impediment is the national moratorium on data centres of over 70 MW in IT load.
The expected growth of the Paris market is more in line with London and Frankfurt this year. Only Frankfurt is expected to grow new supply more than the French capital in 2023.
The regional market is expanding because there is a large and arguably under-served group of French corporates from the aviation, insurance, cosmetics, energy and professional services sectors seeking more data centre services.
South Paris is expected to see most new development now and over the next few years, as providers work to meet hyperscalers’ and enterprises’ needs. This is due to more suitable and affordable land, as well as less severe power constraints in South Paris than in the North. Existing fibre infrastructure connectivity is more common in South Paris.
Hyperscalers are increasing investment in Paris to better serve France and adjacent markets with its excellent transport and network connectivity routes. As a result, there is growing demand for cloud services from hyperscalers and an announced national cloud strategy by the national government. This led many companies in Paris to build remote communications infrastructure and adopt a cloud focused IT strategy.
However developing data centres in North Paris is extraordinarily difficult due to a lack of suitable land and available power. The zoning restrictions implemented for the 2024 Olympics compound issues for providers and others seeking to build in this region.
Italy
Milan is one of the fastest growing markets in Europe because it has more power and land available than many markets, allowing new entrants to construct large data centres. Government policy also aims to encourage investment in cloud services and data storage within Italy. Finally, subsea cables connect Italy to the rest of the Mediterranean and North Africa—with direct land-based fibre connectivity to Milan.
This makes Milan a key connectivity hub because its close proximity to subsea cables enables lower latency to international destinations. Hyperscale-suitable capacity is projected to grow dramatically: the market will nearly double from Q1 2023 to Q4 2024. This is mainly due to the expected delivery of supply from a select group of providers.
Silicon Valley data centres
Silicon Valley has been an ideal location for innovative companies seeking colocation data centre space, especially as more technology firms move to the cloud. Silicon Valley Power, the main utility provider for Santa Clara, historically offered meaningfully discounted power rates to utility provider PG&E in neighbouring cities. This boosted data centre development as providers aimed to save energy costs.
Recently, power availability constraints and inflated land prices have caused providers to explore new development in further neighbouring areas, like the East Bay. Asking rental rates in the 250 to 500 kW range have risen to $155 to $250 per kW, the highest of all North American markets in our report. However, vacancy remained near historical lows at 2.9% during Q1.
In terms of water supply, a record-setting snowpack has temporarily eased drought conditions throughout Northern California. This is a relief for facilities with liquid cooling, as opposed to air cooling.
Land prices have increased substantially in the last five years and there is a lack of available land and rental rates are higher than other major North American markets. This means many new substations will not energized until 2028 to 2029.
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