Six months into its tenure, the UK's new Labour government has shown that, when it comes to data centers at least, it means business.

Earlier this month, Deputy Prime Minister Angela Rayner overruled local planning concerns and gave the go-ahead for the development of a 140MW campus at the Court Lane Industrial Estate in Iver, Buckinghamshire.

The data center had been blocked by Buckinghamshire Council last year as an “inappropriate development on green belt land,” but following a public inquiry, Rayner has given it the thumbs up, stating in a letter that the site “would make a significant contribution” to the UK's data center needs.

Rayner is making good on a promise Labour made when it arrived in office to take a more flexible approach to building digital infrastructure on Green Belt land. At the time of writing a verdict is being awaited in the case of another rejected data center, a 96MW development in Abbot’s Langley, Hertfordshire, that was rejected in January. A public inquiry into this decision ended last month.

This very public embrace of digital infrastructure providers is in marked contrast to the previous Conservative government, which spent much of its time focused on attracting software companies, with former Prime Minister Rishi Sunak publicly courting artificial intelligence developers such as OpenAI and Anthropic and billing the UK as a global AI hub.

Meanwhile, building the infrastructure in the UK that helps the likes of OpenAI train and run its large language models has proved difficult, with many large proposed data center developments held up by local planning concerns about building on Green Belt land around London. The new government has pledged to reform planning laws to make it easier to build data centers, but will also need to address power concerns if it is to help the London data center market, already one of the largest in Europe, grow beyond its traditional heartlands in West London and East London’s Docklands.

Reeves certainly believes her government can make a difference to the industry. Speaking on her trip to the US earlier this year, where she met data center developers including CyrusOne and CoreWeave, she said: “By rebuilding Britain we can make every part of the country better off. Aiming to have data centers across the country is part of that.” Turning this rhetoric into reality, however, is likely to be a sizeable challenge.

The freest of the FLAPD markets

The London data center market is already in decent shape. As the largest of Europe’s tier-one FLAPD markets (the others being Frankfurt, Amsterdam, Paris, and Dublin), it continues to attract new business because, according to research firm BMI, “providers there are able to service a large range of domestic and regional customers from Western to Eastern Europe as well as, in extreme cases, New York.”

In a research note published in June, BMI said London and the surrounding area are home to 1.3GW of IT capacity, with 170MW in development.

“There is less regulation in London which means it is much freer than some of the other FLAPD markets, particularly Frankfurt and Dublin,” says Niccolò Lombatti, a TMT digital infrastructure analyst at BMI. “Across the FLAPD markets, we see similar challenges around access to power - everyone is aware of the power crunch - and the industry model right now is to bring your own power, which is much easier to do in London than elsewhere.”

However, developers wishing to set up data centers in London face challenges too, Lombatti says.

“You’re constrained by three different factors,” he argues. “If you want to build in the metro area and connect to the local grid you have to deal with the Greater London Authority, which has a queue system that involves every application, from residential customers to industrial businesses and data centers. That’s a lengthy process.”

The second challenge, according to Lombatti, is around land availability. “London has a housing crisis,” he says. “So when you have commercial real estate companies bidding against data center operators, regulators are more inclined to use the space for building housing. This is an issue that impacts London more than any other FLAPD market.”

As for the third factor, Lombatti says lead times on new developments are longer in London than elsewhere. “People want to digitally transform fast, but if you want to build in Docklands, for example, you face long delivery times in terms of getting equipment in and getting power supply up and running. It’s not just about getting the power, it’s about how quickly you can deliver for the customer.”

Goodbye green belt, hello data center belt?

The area around Slough in West London remains the UK’s most popular data center cluster, and this year alone has seen companies including Yondr, Segro, and Equinix granted permission for new facilities in or adjacent to the town.

But it is not without its issues, most notably around power supply. In 2022, it was reported that house-building projects in three West London boroughs could be put on hold until 2035 because all upcoming power supply was being sucked up by the data center cluster. Though no ban has materialized, it highlights the fragile nature of the grid in the area, and as a result data center operators are looking to other parts of London.

The borough of Havering, on the city’s eastern fringe, is not currently a data center hotspot, but could soon be home to one of the largest digital infrastructure facilities in Europe. A 600MW data center is being planned for 175 acres of Green Belt land on Dunnings Lane and Fen Road in Havering, near the M25 motorway. The 12-building campus is set to cost £5.3 billion ($5.97bn) to build and is being developed by Digital Reef, a property company also planning a 250MW data center in Didcot, Oxfordshire.

“When we started work on the Havering site five years ago the market was quite unsure about it because of its location,” says Eleanor Alexander, managing director of Digital Reef. “It’s on Green Belt land and was considered a bit ‘off-pitch.’ But we took the view that power was key, and that we needed a site where we could get a grid connection point and use that grid connection point to deliver a proper ecosystem around the data center.”

The company’s stance has proved prescient, as demand for artificial intelligence and other powerful workloads means available power is now a key factor in determining data center locations. To get the required 600MW to the Havering site, Alexander says Digital Reef is investing £116 million ($153m) to upgrade the Warley substation in Upminster so it can take on an additional 445MW of renewable energy from offshore wind farms in the North Sea, off the coast of Norfolk. Further upgrades to the substation could enable it to take on another 1.2GW of clean energy.

Digital Reef is not the only company looking at new locations around the M25. Google announced in January that it is spending £757 million ($1bn) on a 33-acre site in Waltham Cross, Hertfordshire. The search giant has also acquired land at North Weald, Essex, for an as-yet undisclosed data center project. Nearby, in Harlow, Kao Data Centres runs a campus that will eventually offer a capacity of 40MW across four buildings.

NIMBYs and YIMBYs

But getting data centers built around London’s perimeter isn’t easy. “There is less community support for data centers in London than the other FLAPD markets,” BMI’s Lombatti says. “Do residents want them? Do local politicians want them? We’ve seen a lot of applications rejected because people are becoming more aware of issues around power, or data centers not creating many jobs, or taking up space that could be used for housing.”

Digital Reef is facing opposition in Havering from those who are not keen on a massive data campus springing up in their backyard. Though the scheme is backed by the local authority, it has drawn complaints from residents and campaigners. Havering Friends of the Earth coordinator Ian Pirie told the Local Democracy Reporting Service in June that allowing the data center to be built on Green Belt land would contribute to the “creeping industrialization” of the countryside.

Pirie said: “The data center will take between 10 and 12 years to build, and the impact of lorries during construction will be intolerable in these quiet country lanes.

“The impact on the site, if it is built, would also be unacceptable. Instead of farmland, there will be a large number of warehouse-sized buildings, containing banks of computers, batteries, cooling systems, backup power sources, and more equipment.”

Labour has unveiled plans to allow more building on so-called “grey belt” land - parts of the Green Belt that are close to major roads or on the edge of settlements. While this is primarily designed to spur housebuilding, data centers could benefit too.

Changes to the National Planning Policy Framework (NPPF), which at the time of writing are out for consultation, would ask councils to identify potential sites for data centers as part of their local plans, as well as changing wording around the importance of such facilities. Data centers would also be included in the National Significant Infrastructure Projects (NSIP), which means they could be fast-tracked for planning approval, bypassing some steps in the process. Currently, NSIP is reserved for transport, energy, and water projects.

Whether these changes will make any difference in the short term is questionable. Nick Finney, from planning consultancy Arup, wrote in a recent town planning note that the alterations to the NPPF “will take a number of years to influence the supply of suitable sites but will provide additional weight to need in the meantime.”

Finney added: “The NSIP route provides the potential for greater certainty in decision-making time periods and a means to navigate location planning authority objections. However, it can be an expensive and time-consuming route which may only be suitable for the largest campus proposals.”

Data centers in the UK have also been designated critical national infrastructure, a move the government says will give operators access to more support in the event of an emergency.

If nothing else, the planning changes signal a vibe shift compared to the previous government. Labour has shown it is prepared to come down on the side of the YIMBYs (yes, in my backyard), rather than the NIMBYs.

The eagerly-awaited decision on the Abbot’s Langley project, which would see a two-building campus built on land near the M25, will be another test of this stance.

The future of London

BMI’s Lombatti expects the London market to continue to grow outside Slough and the Docklands, primarily due to space constraints.

“The big cloud vendors want to expand their availability zones and they don’t want their data centers in other parts of the UK because the addressable market is in London,” he says.

“You’ve got the financial services industry and you’ve got a lot of AI startups who need capacity to train their models. Where these facilities are built will depend on the use case, but a lot of them are going to be outside the M25 because of space and power constraints.”

Lombatti says he expects core data centers with lower power density, for tasks such as AI inferencing, will continue to be built within London, but larger facilities will inevitably move further out. Microsoft is known to be developing at least two campuses up north in Yorkshire, and a hyperscale campus in Lincolnshire was recently given the go-ahead.

“The average financial services client is fine with building outside the M25,” he says. “The latency issue is a direct consequence, but there is very little space available to build in London. The high-density facilities for workloads like AI training will have to be outside the M25 - Hertfordshire is one location and we think Surrey is another which could be explored.”

Will the new government make a difference?

Data center operator Colt DCS is invested in the London market, with several facilities around the capital including one in Welwyn, Hertfordshire. Earlier this year, it announced plans to double the size of its planned flagship facility in Hayes, West London.

Matthew Cantwell, the company’s director of product and propositions, says that, regardless of Downing Street proclamations, an open dialogue with local authorities remains vital. “It’s good that the government recognizes the importance of digital infrastructure, but our view is that the key is to have good engagement with local government, to choose an appropriate site and show you’ve got a good story for the local economy,” he says. “That’s what we’ve been doing in Hayes, and we have a great relationship with Hillingdon Borough Council.”

Cantwell would like to see the new government address the power situation. It has already reversed a ban on new on-shore wind projects to try and add additional renewables to the grid, but Cantwell says the more pressing issue is allowing companies like Colt access to existing clean power.

“The Iver substation [which serves West London] is being expanded, but all the power is allocated up until 2029,” Cantwell says. “We already have our allocation, but if you don’t that’s potentially going to be a constraint. Investment in the grid, and the distribution of renewable energy to ensure it can get to the right places, is critical.”

Digital Reef is hoping to get permission for its Havering site, via a planning instrument known as a local development order, later this year or early in 2025. DCD understands it already has an unnamed hyperscaler lined up to be the anchor tenant at the site if it is given the go-ahead.

There is optimism that the new government will boost the UK’s data center industry. “The UK’s digital economy is a huge opportunity, but you need the infrastructure that goes with that,” Digital Reef’s Alexander says. “What the government does now is not going to help with our [Havering] project because that’s already in the process, but it could help with future projects, which is great.”

She adds that some of the proposed could help make the UK more attractive to international investors looking to back digital infrastructure projects. “The number one thing which puts investors off the UK is the planning system, so I think some of the changes being proposed to make it easier to build are really positive, and we have to hope those filter down through the layers of government to the local level.”