A recent study published by consulting firm Morningstar DBRS reveals that, while the main European data center markets, known as FLAP-D (Frankfurt, London, Amsterdam, Paris, and Dublin), continue to experience significant growth, secondary markets are emerging as key players due to increasing demand and the regulatory and sustainability challenges faced by the main markets.
The FLAP-D markets, which have traditionally been the largest and most attractive for data center development in Europe, are facing increasing difficulties in expanding. Obtaining building permits, land availability, and, above all, access to sufficient energy have become significant obstacles for new center developments in these cities. As a result, there has been an “overflow effect” towards secondary European markets, including cities like Berlin, Brussels, Madrid, Milan, Munich, Oslo, Stockholm, Warsaw, Vienna, and Zurich.
David Carrero, co-founder of Stackscale (Aire Group), a leader in cloud infrastructure and bare-metal in Europe, who recently joined Aire Group, which owns up to 8 data centers in Spain and Portugal under the brand OasixCloud, mentions that Madrid is growing notably as a strategic location for data center placement in Europe.
These secondary markets, although smaller, offer proximity to major fiber optic routes and lower barriers to obtaining permits and energy, positioning them strategically to absorb some of the demand that FLAP-D markets can no longer meet.
The Morningstar DBRS report highlights that in the first quarter of 2024, 56 MW of new capacity had already been delivered in these secondary markets, with a total projection of 273 MW for the year. The demand, largely driven by cloud service providers (hyperscalers) seeking to establish a local presence, remains strong, with an estimated absorption of 274 MW by 2024.
The study emphasizes that locations within these secondary markets offering good connectivity and access to reliable renewable energy will be the most benefited. These characteristics not only ensure greater competitiveness but also align data centers with the growing sustainability requirements, an increasingly decisive factor in the industry.
One key point of the report is the importance of sustainability in the future growth of data centers. Operators investing in energy-efficient and renewable energy-based facilities will not only encounter fewer obstacles in obtaining permits but will also enjoy greater acceptance in their local markets. Additionally, energy efficiency and the use of renewable sources can protect data centers from energy price fluctuations, offering a competitive advantage in an industry increasingly conscious of operational costs and environmental impact.
As the difficulty in developing new data centers in FLAP-D markets increases, secondary markets are well-positioned to capitalize on this growing demand. However, success in these markets will depend on operators’ ability to identify strategic locations and develop data centers that meet stringent standards of connectivity, energy efficiency, and sustainability.
The report concludes that operators who successfully establish themselves in these emerging markets by investing in high-quality and sustainable assets will be best positioned to lead growth in the European data center industry. As global demand for cloud services and data storage continues to rise, European secondary markets are increasingly seen as an attractive and viable alternative for the future.
References: Morningstar DBRS