Data Centres

Demand for data centre space in London remains strong, though a lack of available power in London remains an inhibitor to growth.

Key Takeaways

1. Colocation data centre take-up in London in 2024 is expected to challenge the all-time high of 139MW set in 2022, given continued strong demand from cloud service providers and enterprises.
2. More organisations are likelier to let space in data centres that are further afield than data centre submarkets such as Slough and Docklands, where availability has declined to new lows in 2023.
3. Difficulties securing capacity and rising development and operational costs at data centres within the M25 will lead more enterprises and hyperscalers to look for space at facilities further afield.
4. Data centre providers are expected to see significant demand for capacity from companies with artificial intelligence (AI) requirements in 2024.
5. A lack of available power at key electricity substations (e.g. Iver) in West London will inhibit growth in the UK capital.

Appetite for data centre space to remain strong

Take-up in London expected to reach new high

Take-up in London next year (150MW) is expected to be almost triple 2019 levels (53MW) due to continued strong demand from hyperscalers and enterprises.  

Large American technology companies are taking ever greater amounts of capacity in the UK capital to ensure demand for their digital services can be met in future. 

Equally, enterprises need capacity from colocation data centres to form the foundation of their transformation efforts.  

Much of the take-up next year is expected to happen in the submarkets where hyperscalers already have a significant presence. Slough, in the western corridor of London, is a prime example. 

Uptick in artificial intelligence demand expected 

Data centre providers are expected to see significant demand for capacity from companies with artificial intelligence (AI) requirements in 2024.  

Requests are expected to come mostly from technology service providers and AI start-ups, as opposed to hyperscalers or enterprises. The former group are wholly dedicated to the provision of services based on AI technology and, therefore, need capacity in significant quantities now. The latter group are considering what their requirements are relative to their IT strategies and are, therefore, expected to take longer to issue requirements for now. 

Demand for AI-related capacity in London will help drive the vacancy rate to single digits (9.1%) for the first time by the end of 2024.

Figure 32: London data centre take-up (MW), 2018-2024F

Source: CBRE Research

More organisations will look further afield for capacity 

More organisations are likelier to let space in data centres that are further afield than the largest data centre submarkets given the likelihood of low availability in areas such as Slough and Docklands next year. 

Enterprises are having a particularly difficult time sourcing capacity, considering most new supply in London is already accounted for by hyperscalers before it is delivered. Suitable and more cost-effective capacity is sometimes more readily available in data centres located outside the M25 motorway that encapsulates London. Organisations can often serve London customers from a variety of locations, not just areas where clusters of data centres exist. 

Colocation rental rates to climb further 

A scarcity of available space, as well as higher build and operational costs, are expected to drive rental rates for tenants of data centres considerably higher in 2024. Supply and demand are more evenly matched in London than ever – take-up is expected to exceed supply for the second straight year.

This market dynamic, inflation, and other factors – such as a small pool of contractors that are in high demand – are conspiring to send the cost of letting capacity at colocation data centres upwards at an exceptional pace.