Europe Data Center Market Landscape 2024-2029

INDUSTRY OVERVIEW

The Europe data center market by investment was valued at USD 42.98 billion in 2023 and is expected to reach USD 64.50 billion by 2029, growing at a CAGR of 7.00% during the forecast period. The region's data center market is driven by the growth of IoT, cloud, and AI/ML. The initiatives launched by the government for the digitalization of respective countries resulted in increasing confidence amongst operators for operating in the region. Furthermore, Europe is witnessing rapid growth in technology and innovation, resulting in significant investments in the Europe data center market. Factors such as land price and stability, free cooling options, carrier accessibility, access to the internet, power, and tax incentives have contributed to the market's growth. The market offers numerous opportunities for operators, which has led to the entry of several players. Also, the government’s role in promoting data center investments through the land for development, renewable energy procurement, and reducing electricity tariffs will drive the colocation market in Europe during the forecast period.

KEY TRENDS

Adoption of Artificial-Intelligence-Based Infrastructure

1. The widespread adoption of AI solutions in Europe has led to a surge in data generation, driving growth in the technology market, increasing the demand for data centers in various European countries, and supporting the Europe data center market growth.
2. Governments and organizations in the region are investing in initiatives to implement AI solutions in their operations. For example, the UK government announced a £900 million ($1.1 billion) investment in Isambard-AI, a high-performance supercomputer, to support AI research at the University of Bristol.
3. In Denmark, specific goals have been set in health, energy and utilities, agriculture, and transport to improve AI implementation, with around USD 8.6 million set aside for new plans.
4. Similarly, the Kremlin is dedicating funds from the federal budget to support AI research in Russia, aiming to accelerate AI development and achieve technological sovereignty in the country.
5. Additionally, data centers increasingly utilize AI to control the power grid and distribution, enabling efficient energy generation, storage, and usage.

Growth in 5G Connectivity & Deployment of Edge Data Centers

The expansion of 5G connectivity is leading to increased data generation, creating a greater demand for the construction of additional and edge data centers. This demand is particularly pronounced in tier II and tier III cities, where building large data centers is either infeasible or would result in a location distant from established data centers. The evidence of escalating 5G deployments across European countries is outlined below:

1. In March 2023, Orange Spain launched the country's first commercial 5G Standalone network with Ericsson, offering improved coverage, device energy usage, security, and supporting sustainability objectives.
2. Due to the Ukraine-Russia conflict, the future of 5G in Russia is uncertain following major suppliers Nokia and Ericsson's suspension of operations and equipment supply. This has created uncertainty around the market's future growth, development, and expansion of 5G services. Major telecom operators, including MTS, rely on equipment supplied by Ericsson and Nokia.

Sustainability Initiatives Attracting Data Center Operators

1. Operators in the Europe data center market are leveraging solar, wind, and other renewable energy technologies to reduce their carbon footprint. Adopting renewable energy aims to align data centers with sustainability objectives and minimize their environmental impact.
2. Most data center operators are opting for renewable energy to power their facilities due to the expensive cost of electricity in all major countries and cities.
3. In September 2023, Microsoft signed a new Power Purchase Agreement with Lightsource bp. It will take over 40 MW of electricity from a solar farm in Poland.
4. LCL Data Centers in Belgium commit to science-based climate goals and has joined the Climate Neutral Data Centre Pact, aiming to achieve carbon neutrality for European data centers by 2030.

Rise in District Heating Concept

1. Europe has witnessed immense growth in its data center ecosystem in recent years. Most data center operators are building massive facilities covering a large area. Data centers are energy-intensive facilities that consume the most electric power and water.
2. A significant trend in the Europe data center market revolves around achieving energy efficiency. The aim is to reach a Power Usage Effectiveness (PUE) of 1.0, indicating that all the energy consumed directly powers the servers; this reflects optimal efficiency.
3. District heating efficiently distributes surplus heat generated by industrial facilities to fulfill the heating needs of nearby residential and commercial areas. For more than a decade, the practice of using waste heat from data centers to support district heating has been in operation.
4. In July 2023, Equinix collaborated with partners to create a district heating system in Frankfurt, Germany. Three Equinix data centers will provide heat to 1,000 homes starting in 2025, showcasing collaboration for community benefit.
5. In May 2023, Penta Infra completed an expansion project at its data center in Copenhagen, Denmark, including an upgrade to the heat pump capacity. As a result, Penta Infra can redistribute the heat generated by the data center to the public district heating grid of Albertslund, providing enough heat for 1,500 residential households.

SEGMENTATION INSIGHTS

1. Western Europe has embraced modular power infrastructure in their data centers to yield long-term and sustainable cost reduction. These systems boast a higher efficiency, are space-saving, and require less maintenance.
2. Monitoring has become crucial over the past few years, fueled by the uptake of real-time monitoring software featuring automation and AI capabilities. This technology will help predict maintenance needs, execute automatic switchovers for uninterrupted operations, and identify component failures. Using cooling techniques in the Europe data center market with a favorable climate is rising, including using evaporative coolers to cool data centers efficiently.
3. Adopting Uninterruptible Power Supply (UPS) systems is a key driver, where lithium-ion batteries are gaining traction for backup power.
4. The Nordic region is known for its positive association with abundant renewable power sources, particularly wind power. These sources, combined with favorable colder climates, make the region an ideal spot for extensive free cooling. These nations offer a minimum of 4,000 hours of annual free cooling, fostering increased methods such as air/water-side economizers and indirect evaporative coolers.
5. Modern data centers are increasingly aligning their constructions with industry standards. The ASHRAE data center cooling guidelines and Uptime Institute’s Tier standards are becoming an integral and non-compromisable part of data center planning.
6. District heating has become the latest innovative concept that is expected to grow among data center facilities in colder climatic conditions in the Europe data center market. For instance, Floridsdorf Hospital in Vienna, Austria, receives waste heat generated from Digital Realty’s data center in the same city.

GEOGRAPHICAL ANALYSIS

1. Investors in the Europe data center market are increasingly choosing locations like Spain, Portugal, Greece, and other areas with abundant renewable energy and reasonable land prices. Hyperscale leaders like Microsoft, Meta, and Google are at the forefront of developing sustainable hyperscale facilities, especially in Nordic and Western European countries. Colocation data center developers also contribute by adopting initiatives like HVO, sustainable construction materials, and green facades.
2. There is significant growth in greenfield and modular data center developments across the Europe data center market. The modular data center developments are increasing as construction methods are deemed inefficient due to labor shortages, budget constraints, and construction delays in certain countries across the region.
3. The FLAP-D markets, including Frankfurt, London, Amsterdam, Paris, and Dublin, are the primary destinations for data center development in the Europe data center market. Other emerging locations comprise Spain, Italy, Portugal, Belgium, and others.
4. Denmark has demonstrated a growth trajectory, showing a steady increase in area and power capacity and a surge in investments to around $530 million in 2023, highlighting the commitment to infrastructure expansion. The Danish data center market has grown significantly recently, attracting major tech players, including Meta, Google, and Apple.
5. Norway is experiencing significant investment growth, reaching over USD 600 million in 2023, with a record rise in expansion initiatives in area and power capacity to accommodate the rising data demands. Initiatives like the data center strategy and enhanced data protection laws have bolstered industry growth, attracting cloud service providers such as IBM, Amazon Web Services (AWS), Google, and Microsoft Azure. On the other hand, Finland and Iceland present unique opportunities for data centers in terms of investments. Finland's robust tech landscape and focus on sustainability make it lucrative for business, with its capital, Helsinki, being the go-to location.
6. Russia is an established data center market in the Central and Eastern European region, whereas Poland, Czechia, and Austria have been emerging pretty well in recent years. Tech giants like Google and Microsoft are now targeting the region for launching their cloud regions and edge facilities. Other countries like Hungary, Estonia, Slovakia, Bulgaria, and Croatia, among others, have witnessed meager investments lately, and the trend is expected to remain the same for the next two to three years.
7. Russian demand is likely to shift to the above countries due to the political instability between Russia and Ukraine ever since its invasion of the latter in June 2022.

VENDOR LANDSCAPE

1. Digital Realty, Equinix, NTT DATA, atNorth, Iron Mountain, Colt Data Centre Services, Orange Business Services, Vantage Data Centers, STACK Infrastructure, and others are among the current major European data center investors.
2. The major hyperscale operators investing in the Europe data center market include Amazon Web Services (AWS), Apple, Microsoft, Meta, and Google. These operators focus more on developing data center facilities across Western Europe and the Nordic region.
3. Support infrastructure vendors include ABB, Airedale, Caterpillar, Delta Electronics, Eaton, Schneider Electric, Legrand, Eaton, Rittal, Vertiv, and many others. These companies have a strong global presence and have been operating across Europe for many years. In some prominent countries with many existing and ongoing ventures, they operate directly, whereas, in others, they operate via channel partners and distributors, getting into competition with local vendors in their respective countries.
4. Notable construction contractors in the Europe data center market include AECOM, Arup, Deerns, Mace, PM Group, ISG, Linesight, and many others.
5. Prominent vendors like CloudHQ, Goodman, Prime Data Centers, Ada Infrastructure, Global Technical Realty, Nation Data Center, and others are among the new entrants in the Europe data center market. These companies have a considerable presence in other countries across the world as well, outside of the three European sub-regions. These companies may disrupt the existing industry by posing as competitors to the existing players, and their clientele from other parts of the world may likely follow them here as well.
6. The Europe data center market will be a rain-maker and bring in multi-million dollar revenue opportunities for construction contractors and sub-contractors operating in said market, and it will also lure in new companies open to offering their construction services in this market. Considering the vast availability of area, labor, comparatively inexpensive construction costs and electricity rates compared to North America, the chances of thriving in this region is a positive possibility.
7. Competition among existing infrastructure and key service providers will also rise, with developers and operators keen on building sustainable data center environments.