Whilst ‘manifest’ bagged the Word of the Year for 2024, the industry could be forgiven for holding out hope that ‘data centre’ might make it for 2025. Following Rachel Reeves’ first speech as Chancellor that held up data centre development as an example of political commitment to economic growth, there has been wave after wave of investment stories, and most-recently an analysis of the potential £44bn that the sector could yield[1].
Yet on the ground, the talk is as much of how to divest data centre assets and just buy capability, as it is about investing in new facilities. The question for the industry in 2025 will be how to navigate such clearly opposing forces. What will the industry look like in a year when everyone wants the capability of a data centre, but no-one wants the cost?
There is incredible demand for data centre capability throughout the UK. But, lets be honest – we are not short of them - there are more than 500 across the country. This puts us behind only the US with more than 5,000 and Germany with approximately 520.
But make no mistake, 2025 will continue to see the demand for more DCs being developed. The issue is two-fold. Firstly, the London data centre market represents about 80% of the UK total. Financially and economically, that is a huge skewing. Operationally, it is a disaster in the making.
Simply put, one of the main reasons we are developing more DCs is because they are needed outside of the M25. Businesses need their data closer to them for a variety of use cases and this is driving data centre need beyond the capital.
The second big driver is the continued data growth and the incredible catalyst of AI. Even before considering AI, the European market for data centre storage had led to the pipeline of data centres needing to more than double by 2025 to meet demand.
AI takes this situation to new heights. In the words of the CBRE: “The surge of Artificial Intelligence (AI) applications has contributed to unprecedented demand on data centre infrastructure. Existing facilities are no longer fit for purpose and AI-ready capacity is in short supply….”
2025 will be the year of the “AI DC” – a year where the industry will balance the intense scrutiny of a market that has been growing by 50% annually, against the challenge of an AI-fuelled global electricity demand set to increase to over 1,000 TWh.
At the same time as this incredible market growth pulls operators and enterprises into unfamiliar territory, the costs involved in setting up, maintaining, and running a data centre have soared. May 2024 saw Royal London sell an industrial site in West London to an unnamed data centre operator for £315 million (and no, it was not us…). The Blackstone ‘AI DC’ in Northumberland is costing £10bn, while AWS is sinking £8bn into UK DCs over five years.
At the same time, more than half of data centre operators struggle to get top talent in the door, and 42% are finding retention tougher than ever, according to the Uptime Institute. Which of course means higher salaries, leading to increasing costs.
Amidst these costs, it is easy to believe the 2019 Gartner prediction that by 2025, 80% of enterprises would shut down their traditional data centres.
The key word here is ‘traditional’. Businesses now seek data centre capability with precise, tailored services – a kind of ‘colocation 2.0’. No longer just a place to host racks full of compute and storage, data centres have evolved into interconnection points for technology businesses, connectivity and cloud providers, and end user clients.
These data centres then become a kind of ‘ecosystem at the edge’, allowing businesses to capitalise on competition, cut costs, remain flexible as they grow and avoid vendor lock-in. The commercial precedent for this is well-established as seen in the moves from capex to opex. Operationally, it can be seen as ‘data centre as a service.’
As 2025 continues to be the year of the DC, buying patterns such as these will become ever more nuanced. Data centre operators will respond to a changed marketplace with options that are still very much colocation, just not as we know it.
[1] See techUK Report - Foundations For The Future: How Data Centres Can Supercharge UK Economic Growth