To say that today’s global economy is rapidly evolving in response to artificial intelligence (AI) and cloud computing would be an understatement. Data centers have become the backbone of this renewed digital economy, designed to efficiently store and manage increasingly vast amounts of data. Whilst power, land, and a crucial transition to renewable energy resources remain key obstacles, the UK is well positioned to lead the European data center market if it can successfully address these challenges.

Bucking the trend in falling real estate deals over the last three years, the data center market has exponentially risen by 50 percent since 2022, compared to the overall UK real estate market. Due to a demand that shows no signs of slowing, the data center sub-sector is one of the most lucrative alternative investment sectors in the real estate industry, estimated by PWC to be the most sought-after real estate asset after clean energy infrastructure.

But with this opportunity comes the challenges of carbon-neutral construction, zero water consumption, and meeting demand, the latter being measured in power consumption to reflect the number of servers a data center can house. Despite US giants dominating the global tech market, accounting for 25GW of global power consumption, data centers in the States consume five percent of the US’s power supply.

However, supercharged by AI, London’s data center inventory alone recorded an 11 percent increase in H1 2024 compared to 2023. Whilst the UK accounts for just 1.06GW of global power consumption, a further 1.2GW extra capacity worth £200 million ($264m) of new rent is in the pipeline from SEGRO. If the UK market unlocks its full capacity of approximately 4GW, it could secure its position as a leading industry player in Europe, whilst significantly contributing to the European data center market.

So, what does the UK data center market need to do to get there?

Capitalizing on the opportunity, data center permits in Dublin and Germany are currently on hold due to concerns over high power consumption, giving the UK market a significant advantage. Key industrial and urban warehousing property developers are already igniting a surge in high-quality data centers in the UK, contributing to the country's economic productivity and reliance. SEGRO, a listed UK Real Estate Investment Trust (REIT), has been a main actor for several years.

Data centers are already being established across the Southeast of England with a total of 31 warehouses in and around the region, promoting growth and increasing high-value jobs across the UK. What’s more, the data centers are being built with sustainability and energy efficiency in mind, in turn driving the green economy.

There is much more potential, however, to reach maximum power capacity, by building data centers further afield. Whilst London’s land space is limited, data centers are easily constructed on brownfield sites, making it a good option to build where power is cheap, reversing land redundancy, and pursuing national agendas to push high-value jobs further North – bridging the gap between London’s existing economic hub and the North’s promising economic potential.

Whilst power is a challenge, the hardest piece of the puzzle will be connecting energy from the grid to data centers. This will require well-structured logistics to successfully integrate data centers into the national infrastructure. The UK, however, is well poised to address this challenge as home to one of the world’s most stable and cleanest power grids. Finally, this is set against a backdrop of energy transition, with investors and legislators demanding that data center operators reduce their carbon footprints. Again, the North and Scotland emerged as an ideal location for sustainable data centers to be established, primarily due to the region’s access to renewable energy sources and a cooler climate, reducing the need for energy-intensive cooling systems.

By harnessing wind, hydro, and other renewable resources, data centers in the North of England and Scotland are well positioned to lead the UK’s energy transition, providing greener alternatives and setting new benchmarks for sustainability in today’s dynamic tech industry. This shift will not only align with global carbon reduction goals but will have the dual benefit of enhancing the attractiveness of the North of England and Scotland as a hub for data-driven innovation, promising both environmental and economic benefits.

Ultimately, as technology continues to shape our lives, AI and cloud computing will, in tandem, continue to shape the future of data centers as an alternative for real estate investors. In an increasingly competitive international arena, with clusters emerging across Europe around Flap-D data centers in London, Frankfurt, Amsterdam, Paris, and Dubin, as well as Warsaw and Madrid (Spanish-listed real estate company Merlin Properties is a key actor in Iberia), the UK can realize significant growth that will in turn stabilize and advance the national economy. What is clear is that no one involved in the rapid development of the sector is standing still.

With talks of new infrastructure to maximize data center efficiency through reduced power usage, cutting data center footprints by over half, and the ongoing development of AI factory architecture, now is the time to capitalize on the new digital economy’s infrastructure, including data center capacity demand for AI, cloud, and digital services.