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Should UK data centers fear Brexit?

Debates about the June referendum on Britain’s exit from the EU – or Brexit – have dominated headlines in the UK in recent months. There have been letters to newspapers from political and business leaders, arguments in parliament, incensed accusations of fear-mongering, and counter accusations of deception.

But what about data centers? In a recent DCDi research report, Metropolitan Hub Series: London, we listed a Brexit as a threat to London’s role as a major global data center hub. London is the center of the UK data center industry, accounting for more than a third of all data center capacity in the UK. It is also the largest data center market in Europe, and the third-largest in the world, based on current DCDi estimates. It accounts for more than a million square meters of white space and more than 1GW of power. So any damage to London will have an impact on the UK’s data center industry, even if data center investment outside the capital is not markedly affected.

EU map

Source: Thinkstock / bymandesigns


London’s success as a data center hub is built on its role as a center for trade and commerce. In particular, it is a major financial center, and this is a powerful driver for data center investment. Today, London has the largest stock exchange in Europe and is the largest center for derivatives markets, foreign exchange markets, money markets, issuance of international debt securities, and international bank lending worldwide. In fact, London is currently the top-ranked financial center in the world, according to the Global Financial Centres Index.

London’s data center industry has expanded well beyond finance now, but we estimate finance still accounts for about one-third of all data center capacity in London (including in-house facilities and colocation), so it is still very important.

In the event of a Brexit, it is difficult to imagine the financial capital of Europe remaining outside Europe in the long term. Obviously, we don’t know the terms and conditions of a Brexit, so it is impossible to intelligently predict what will happen. The timeline for many of these changes is also unclear, since the terms of the exit will likely take years to hammer out.

Certainly London’s entire financial sector will not decamp overnight, but it is probably realistic to expect that a considerable percentage of financial activity currently in London will migrate onshore, to destinations such as Paris and Frankfurt.

Data residency issues might also add impetus to this shift. Since the Safe Harbour ruling in October 2015, we have been expecting more storage and processing of data to move into the EU. This dynamic initially favored new investment in London, but if it is no longer part of the EU, it may result in data transferring out of London, rather than into it.

And while the financial sector is not the only industry that supports London’s data centers, other industry verticals are likely to be affected similarly. At least some percentage of the large European companies that are currently headquartered in London (100 of the 500 largest European corporations) will also move some percentage of their data requirements back to the continent. There probably will be some reverse flow from Europe; ie, British data that is stored in Europe today will return to Britain. However, this is likely to be eclipsed by the flow into Europe over time.

London also has some disadvantages as a data center destination. Like most congested hub cities, space and power are scarce resources. Building and running a data center in London can be expensive. And the UK’s power situation is a cause of concern even outside the data center industry. London’s broad attractiveness as a data center destination has more than compensated for these challenges so far, but could a Brexit tip the balance in favour of European hubs?

London also benefits from a sort of “economic gravity.” Its commercial draw pulls together financiers, entrepreneurs, technologists and marketers to drive growth and development in a variety of industries, with new businesses springing up around existing ones.

A Brexit would surely weaken London’s “gravity,” but it’s unclear if it would do so sufficiently to discourage investment in data centers. It’s also not clear if another European city would necessarily become the commercial center of Europe. Rather, investment may be spread across multiple European destinations, which would favour London.

All in all, we would expect a Brexit to have a medium-term negative impact on London’s role as a business and financial center, and therefore as a destination for data center investment. It will also give rise to considerable uncertainty. But it is almost impossible to determine how significant or sustained this impact will be on the data center industry.


Readers' comments (2)

  • I could not disagree more. Staying in will encourage the EU to try to wrest the power from the London markets and damage the data centre dominance. They don't like our dominance in either financial matters or data centres. I have heard it first hand in the halls of corruption (sorry, power) in Brussels.

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  • This uncertainty will make setting up in Ireland even more appealing. Ireland has a proven track record of attracting investment from the top 5, oversupply of power, has recently connected to two new transatlantic cables and is in the EU!

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