European data centre demand, totalling 511 megawatts (MW), surpassed available supply, which stood at 467MW, in 2023 across the five major European markets, according to a new report by property company CBRE.

This marked the third instance in the past five years where demand exceeded supply in these critical markets, underscoring a persistent challenge for the industry.

New data centre capacity that came online in the past year was primarily for hyperscalers (large consumers of data centre capacity) in the FLAPD markets (Frankfurt, London, Amsterdam, Paris, and Dublin).

Hyperscalers, particularly large American technology companies, are major contributors to the decline in available data centre capacity, requiring substantial data centre space for the delivery of digital services.

The escalating rental rates of leased data centre capacity over the last two years have been attributed to higher build costs, compounded by the existing supply-demand imbalance.

CBRE’s ‘Europe Data Centres Figures Q4 2023’ report states that data centre providers hold pricing power due to rising build costs, low availability, and sustained high demand. The report also projects double-digit annual rate growth for hyperscalers and enterprises in the FLAPD markets.

CBRE anticipates little relief in the near future, as hyperscalers are expected to add similar capacity in the coming years. However, the trend indicates fewer deals between hyperscalers and providers, with larger deal sizes and increased deal completion times.

CBRE’s findings reveal that of the total 467MW used in the major European markets, Paris (82MW) and Dublin (74MW) accounted for over half of the new supply in Q4.

London (58MW) and Frankfurt (52MW) remain the largest markets, though the overall live data centre space in London now exceeds 1GW.

Despite the substantial supply delivered in FLAPD last year, challenges persist for data centre providers in securing available power and suitable land to meet the soaring demand from their largest customers in Europe.

The report anticipates continued growth, driven by hyperscalers and increased demand from organisations with artificial intelligence requirements.

The demand surge, coupled with a shortage of AI-ready facilities, necessary chipsets, and limited available power across Europe, has left data centre providers struggling to accommodate those with AI-specific needs.

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In Q4, take-up in the FLAPD markets saw a 41% increase compared to the previous quarter, reflecting strong demand from hyperscalers and enterprises.

Over the past four years, vacancy rates in the 14 European markets tracked by CBRE have dropped by almost 10%.