The Western Europe data center construction market was valued at USD 7.24 billion in 2022 and is expected to reach USD 9.48 billion by 2028, growing at a CAGR of 4.58%. The region is one of the fastest-growing countries in technological development and innovation. The market is witnessing significant investments due to the increasing adoption of cloud services, the advent of AI/ML technologies, and government support for data center development. The Western Europe data center construction market is driven by factors such as land price and stability, free cooling options, carrier accessibility, accessibility of connectivity & power, and tax incentives.

The government's interest 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. UK, Germany, and France are among the top contributors in the Western Europe data center construction market regarding investment, area, and power capacity. The countries have the presence of some FLAP cities, such as Frankfurt and Paris, which highly attracts investments in the whole of Europe.

KEY HIGHLIGHTS

• There is a high demand from organizations for retail colocation services in developing countries. Enterprises having limited budgets and demanding geographical distribution capacities will drive the demand for retail colocation services. There is an increasing demand for computing power from cloud providers, enterprises, IoT, and Big Data organizations, which will drive wholesale colocation demand.
• Germany leads the Western Europe data center market with an overall investment of over USD 1.8 billion in 2022. The country's cumulative growth is expected to be more than USD 12 billion during the forecast period.
• The growth in data center development has led the contractors to implement new sustainable methods, increasing the competition among them. Operators opt for these contractors to enhance their green credentials.
• There is significant growth in greenfield and modular data center developments. The modular data center developments are increased as the construction methods are seemed inefficient due to labor shortages, budget constraints, and construction delays in certain countries across the region. The increased demand for modular solutions from data center operators is increasing the revenue of modular data center solutions providers such as Vertiv, Dell, and HPE, among others.
• The power capacity is expected to grow significantly in the region with the advent of colocation and hyperscale operators investing highly in the market. There is a trend of procuring energy harnessed from renewable power sources by colocation, hyperscale, and colocation service providers.

KEY TRENDS & DRIVERS

Growing Adoption of Artificial Intelligence
The adoption of artificial intelligence is fueling data generation and the technology market, thereby increasing the need for data center construction. Eurostat released a report according to which Ireland ranks at the top in Europe in using AI/ML technologies by businesses and enterprises in their infrastructure or applications.

Several AI initiatives in countries across the region include global partnerships on artificial intelligence, a mission on artificial intelligence, a national strategy on artificial intelligence, and others. For instance, The Government of France invested around USD 1.7 billion in its National Strategy for Artificial Intelligence. The high adoption of AI/ML solutions is prompting the installation of a highly efficient cooling infrastructure. Liquid cooling is the prominent technology for supporting AI/ML workloads in High-Performance Computing (HPC). Direct-to-chip and liquid-immersion cooling markets, through OEM, are making strong bonds. Research & Development centers are being set up for innovations in AI and other applications across various Western European countries. For instance, R&D centers for AI have been set up by companies such as Google, Oracle, and Huawei.

Increase in Sustainable Initiatives
Data centers, the major sources of carbon emissions worldwide, are looking for sustainable initiatives to reduce the high quantity of CO2 emissions generated by the facilities. According to the Europe Climate act, a part of the European Green Deal, countries across the continent are aiming to achieve net zero carbon emissions by the year 2050.

Various operators in Western Europe are a part of the Climate Neutral Data Center Pact act, such as Interxion (Digital Realty), Aruba, OVHcloud, Equinix, and Scaleway data center, among 17 industry associations. The pact states that the facilities part of it must be powered completely using energy harnessed from renewable energy sources such as wind, hydro, solar, and others by 2030. The Government of the UK aims to achieve 100% renewable energy in its energy mix by 2035.

The Government of Germany announced the Easter Package to improve the renewable energy grid deployment and expand the existing ones. By 2030, the Government of Germany will generate around 80% of renewable energy. In April 2022, AWS announced it would deploy renewable energy projects in France and other locations with 3.5 GW of power capacity. Renewable energy will be the second by AWS in France, bringing the total project capacity to around 38 MW.

Rising Colocation Data Center Investments
The Western Europe data center construction market has shown signs of growth with the development of hyperscale data centers by cloud service providers such as Microsoft, IBM, Amazon Web Services (AWS), Oracle, Google, and Tencent. The prominent investors in the Western Europe data center construction include Equinix, Interxion (Digital Realty), NTT Global Centers, Echelon Data Centres, Iron Mountain, OVHcloud, Vantage Data Centers, and VIRTUS Data Centres.

In August 2022, Proximity Data Centres opened a data center in Buckinghamshire. A loan of USD 30.8 million was granted to the operator for its UK expansion, with a total investment of USD 99 million. OVHcloud, a cloud computing, has planned to invest around USD 101 million by 2027 for its upcoming data center in Limburg. Telehouse has planned an investment of around USD 988 million for its European expansion. Telehouse plans an investment of around USD 988 million for its expansion in countries across Western Europe and other regions in Europe. An increase in data center investment will provide huge revenue opportunities for construction contractors and colocation and infrastructure providers worth billions of dollars.

Support of The Government For Data Centers

• One of the prominent enablers for the Western Europe data center construction market is breaks and tax incentives offered in various countries, which generate significant savings and incorporate other benefits.
• The Government of Spain is investing highly in the country’s overall digitalization. The government has planned around USD 720 million to strengthen Artificial Intelligence in the country.
• The taxes on electricity were reduced by the Government of France and will help in attracting investments in the country.
• The UK government has placed a corporate tax of 20%, the lowest amongst G20 countries.
• The Federal Act on Data Protection (FADP) in Switzerland includes a few GDPR adaptations, which will aid in attracting further investments for data centers in the country.
• The French Government offers tax incentives for Research & Development up to 30% and has a limit of USD 97.48 million.
• The Dutch government is undertaking initiatives to bring the country to the forefront of the Western Europe data center construction market. The sales and VAT rate in the country is over 20%.
• The Government of the Netherlands is taking initiatives to increase the country’s data center market portfolio and reach. The VAT and sales tax in the country stands above 20%.
• Tax incentives are available in most Western European countries. More tax breaks will be concentrated on less developed countries to attract investment in the Western Europe data center construction market.

SEGMENTAL ANALYSIS

• Significant investment growth due to the advent of technologies such as cloud computing, Big data & IoT, and M/L Technologies.
• Increasing growth in the construction of modular data centers is being observed.
• Operators are adopting the turnkey approach for designing new data center facilities.
• Greenfield projects will encounter more growth as compared to brownfield.
• The brownfield development of data centers will continue to grow along with installing on-site renewable power sources.

COMPETITIVE ANALYSIS

• Some of the major vendors operating in the Western Europe data center construction market include Arup, AECOM, Ariatta, Bouygues, ICT facilities, Mercury, Metnor Group, Oakmont Construction, ARC:MC, Kirby Group Engineering, DPR Construction, Turner & Townsend, Gruner, Lupp Group, Max Bogl, Exyte, DBA PRO, Future-tech, ISG, and NORMA.
• An immense focus is on reducing energy consumption and carbon emissions by implementing sustainability in the facilities using free cooling, district heating, and others. For instance, Orange and OVHcloud collaborated on a project called DISTILLER (recommender servIce for SustainabLe cloud-native software) to reduce carbon footprint.
• Some of the major colocation providers operating in the Western Europe data center construction market include Equinix, Digital Realty, Aruba, Colt Data Centre Services, Vantage Data Centers, CyrusOne, NTT Global Data Centers, VIRTUS Data Centres (ST Telemedia Global Data Centres), Iron Mountain, EdgeConneX, OVHcloud, among others.
• The increase in competitiveness due to the factors such as the high cost of infrastructure, scaling, efficiency, sustainability, and others, allows the construction contractors to innovate their products and services during the forecast period.
• The Western Europe data center construction market is driven by new entrants such as Global Technical Realty, Best Wonder Business (BWB), AQ Compute, Yondr, CloudHQ, Nation Data Center, and Stratosphere, among others.