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What we predicted

  1. Higher rental rates, a rebound in the amount of supply brought online and record take-up in London, as well as additional mergers and acquisitions were among the top expectations of the data centre market before 2022 started. Colocation pricing is very much on the rise due to record inflation in the UK and supply constraints. Demand is still set to reach a new height in London as well
  2. Though massive multi-billion dollar deals have yet to emerge, the higher costs involved with data centre build outs and the intensity of the competitive landscape are factors that will likely lead to the announcement of mega deals by the end of the year

What's happened so far

  • The London data centre market, which represents about 80% of the UK total, is on track for a record year. At least 110MW of take-up and 158MW of supply are expected to be delivered this year, new highs for the market if achieved
  • That said, Q1 was relatively slow for the market when the annual projections are considered as 17MW of take-up and 46MW of new supply were recorded
  • However, demand from hyperscalers remain strong in London - the world’s second-largest market and Europe’s largest - despite considerable market constraints faced by operators
  • The cost and complexity to build and fit out data centres have multiplied for operators. The pandemic has led to longer lead times even though Covid-19 restrictions have largely been alleviated in the UK. Operators haven’t delayed the delivery of new schemes for the most part
  • Longer lead times of everything from generators to cable trays are the norm; lead times on equipment orders have doubled in many cases and higher costs are a consequence too

What happens next

  • Data centre demand is expected to accelerate in the second half of the year in London. Europe’s largest market remains attractive to hyperscalers and enterprises given its vibrant and diverse economy as well as rich connectivity available. CBRE still sees tremendous demand in London despite the high cost of doing business and difficulties operators have in securing power and suitable land
  • Pre-lets will continue to play a prominent role given the scarcity of suitable land in London, especially in areas like Slough, Stockley and Hayes
  • We expect wholesale lettings to single tenants, typically hyperscalers, to represent the preponderance of demand in the second half of the year in London. That said, demand for retail capacity should remain high as well considering media companies and financial services firms are looking to secure capacity to ensure requirements are met