The world of data centres is evolving at an unprecedented pace, driven by the ever-increasing demand for AI solutions. At the same time, sustainability challenges, energy efficiency and security of supply are becoming increasingly in focus due to the significant energy demands of data centres. The growth potential of the sector remains attractive, with 70% of investors expecting further growth over the next two years, according to a recent international report* by DLA Piper.
Increasing investment and dynamic M&A activity
The spread of AI-based solutions is driving demand for data centres, which could lead to a 30-50% increase in the investment volume in the future. Despite the challenges, data centres will continue to play a key role in the evolution of digital services. In the US, in particular, we have seen a strong recovery, driven by significant investments from large technology companies such as Microsoft and BlackRock. There has also been significant growth in both deal volume and deal value, with the number of global data centre acquisition deals up with 52% over the past year and the average deal value up with 42%.
Sustainability and ESG challenges
The rapid expansion of data centres poses a significant challenge, as providing an operational environment for AI applications is energy-intensive. Goldman Sachs Research estimates that the industry will require 160% more energy by 2030, which will require that regulations governing data centre development and related investments to address sustainability and ESG considerations.
In recent years, the European Union has taken a number of measures that focus on ESG aspects for large EU companies, including data centres. The Corporate Sustainability Reporting Directive (CSRD) and the Taxonomy Regulation impose reporting requirements covering a range of environmental issues. Under the latest Corporate Sustainability Due Diligence Directive (CSDDD), companies are required to put in place comprehensive due diligence policies and procedures to mitigate the adverse environmental and social impacts they identify.
The EU regulatory framework can provide a solid basis for more sustainable data centre operations, helping to increase their energy efficiency and reduce their environmental footprint. If operators effectively integrate these requirements into their ESG strategies and operations, data centres can become key elements in achieving the EU's climate and environmental goals, not least to benefit from the growing demand for sustainable and responsible business practices.
Regional differences and future prospects
Data centres have different characteristics around the world: while in the US rapid growth and large investments have already strained the existing electricity grid to the point where new projects are prohibited in certain regions, in Europe the market is shaped by the regulatory environment and sustainability concerns, and developers have not faced similar constraints. While it is true that the Nordic countries are located further away from areas traditionally considered key for data centres, the typically cooler climate results in lower energy costs, while the essential high stability of the electricity grid, the wide range of renewable energy sources and the availability of development sites provide additional advantages. The Asia-Pacific region, particularly Japan, South Korea and Australia, also offers significant growth opportunities. In the Middle East, governments are increasingly investing to reduce their dependence on fossil fuel-based economies. One example is Khazna's 100 MW artificial intelligence-optimised data centre in the UAE.
According to our report, the global data centre market is expected to reach USD 300 billion in the near future, and the industry participants surveyed expect growth by 10% per year over the next five years. Innovations such as more advanced cooling systems and more energy-efficient servers will be key to future growth.
The evolution of data centres is driven by the increasing demand for AI technologies and digital transformation. However, addressing the challenges of sustainability and energy supply will be key to long-term success. Industry players will need to continuously innovate to meet the changing market and regulatory environment while ensuring efficient and sustainable data centre operations. As technology continues to evolve, the role of data centres in the global economy may become more prominent, and companies that can adapt to, or even to predict, future trends will gain a significant competitive advantage.
* TMT Finance was commissioned by DLA Piper to conduct a survey in Q3 2024 of 176 industry leaders on data centre investment opportunities, emerging trends and the impact of artificial intelligence (AI). Respondents included industry leaders, investors, financiers, data centre operators and telecoms companies
By Tamas Balogh, Counsel, Real Estate Service Stream Leader, and Eniko Nyikes, Intern, Real Estate Group, DLA Piper Hungary
