• European Data Centers’ Pipeline up to 2025

    February, 2023

The data center development pipeline in Europe for the next three years is insufficient to meet the expected increase in demand for data storage. It is estimated that European data center capacity will reach 9,000 MW by 2025. However, to meet the expected increase in demand, it would be necessary to reach 20,750 MW, i.e., a 2.5-fold increase in the current pipeline.

Since 2020, the demand for data storage has seen a huge increase and this trend is expected to continue for at least five years, with approximately 72% of enterprises globally awaiting to use digital platforms and cloud tools by 2026.

As demand continues to grow, the data center market keeps showing resilience despite the current economic environment. In H1 2022, $24 billion worth of data center M&A deals were closed, with an additional $18 billion in deals planned for this year. In addition, this year has seen a strong inflow of private equity into the sector, accounting for 90% of the value of M&A deals worldwide.

Data centers are capital-intensive assets and require scale to be profitable. To meet the increased demand for storage, the industry is focusing its capex on expanding and upgrading its fleet, which is driving an increase in sale & leaseback transactions.

Prime yields currently stand between 3.6% and 4.5% in the FLAP markets (Frankfurt, London, Amsterdam and Paris) and between 4.0% and 5.5% in the rest of Western Europe. Further yield compression is expected over the next two years as investors continue to be bet on this market. With rising demand, long-term cash flows and security, the fundamentals of the data center sector remain strong in a context of global economic uncertainty. However, as an energy-intensive sector, it is not immune to the geopolitical situation, so in the short-term developers are likely to develop their new projects in locations where power is secured, while continuing to move forward with on-site power deployment and ESG strategies.