The decision taken by the European Commission earlier this year to award a €180 million ($204m) cloud contract to four European-controlled providers represented one of the clearest signals yet that Europe is moving from talking about data sovereignty to procuring it in practice.

In an increasingly fragmented world, with geopolitics showing no signs of calming, it makes sense that governments are thinking carefully about where the data of their citizens and organisations sits and who handles it.

Extra-territorial legislation, which could, in theory, compel operators to share a country’s data with a foreign power, is rightly being scrutinized, and there’s now a growing consensus among governments that new infrastructure needs to fall firmly under European ownership and jurisdiction.

Structural headache

But the continent is facing a fundamental structural problem.

For decades now, the traditional FLAPD markets – Frankfurt, London, Amsterdam, Paris, and Dublin – have served as the backbone of Europe's digital infrastructure and housed much of its data.

These markets remain essential but are under enormous strain.

Extraordinary demand for capacity means vacancy rates across the continent are forecast to reach an all-time low of 6.5 percent by the close of 2026, and nowhere is this supply crisis more acute than in these established hubs. In Dublin, for example, the colocation vacancy rate has fallen to just 1.3 percent.

Operators in these key markets are also contending with a perfect storm of severe power constraints, spiralling land and operational costs, and increasingly strict local regulations, all of which are limiting what can be built and where. In some established hubs, grid connection timelines can stretch to as long as ten years, while primary markets command significant powered-land premiums.

There are now limited opportunities to scale and deliver brand-new European-owned capacity in these markets. That creates an uncomfortable paradox: Europe is trying to take back control of its data just as the physical capacity needed to host it is becoming harder to secure.

Next wave data center markets

So how do we deliver the new compute that Europe urgently needs to ensure its data sovereignty ambitions are realized?

The answer lies in what we term 'next wave' data center markets. These are cities like Vienna, Hamburg, Lisbon and Barcelona, which for decades were seen as a supporting player at best when we thought about digital infrastructure, but which are now receiving billions in investment.

These markets offer a genuine opportunity to scale, boasting strong fundamentals including better access to power and land, robust local demand and local authorities with a real appetite for digital infrastructure and the benefits it brings.

The growth of these markets is now outstripping FLAPD, with Tier 2 forecast to grow at a CAGR of 20.4 percent between 2024 and 2031, compared to just 12 percent for Tier 1 FLAPD markets. Cities like Madrid (24.2 percent) are now growing at more than double the rate of established hubs like London (8.5 percent) and Paris (9.6 percent).

Germany, where we have invested heavily in recent years, perfectly encapsulates this new dynamic. Frankfurt is and always will be a critical node, but it can’t do it all. Cities like Berlin, Düsseldorf, Hamburg and Stuttgart are now stepping into the breach and delivering vital capacity.

These markets are now underpinning Germany’s push towards sovereign cloud, which, by its nature, is capacity-hungry and requires significant scale to deliver the performance and redundancy that industries demand.

New platforms like T-Systems' Open Telekom Cloud, which operates entirely under German law, ensuring full GDPR compliance, will only reach their full potential with the distributed footprint and capacity that the next wave markets can offer.

During this year’s World Economic Forum in Davos, European Commission President Ursula von der Leyen remarked that data sovereignty is now “a structural imperative” for Europe. She’s quite right, but recognition won’t be turned into action if there is a major structural weakness.

Scaling beyond FLAPD

Europe’s historic overreliance on a handful of oversaturated markets is one such weakness, and the continent’s ambition for digital sovereignty risks being an empty promise without enough cities able to host such large amounts of data.

The point is no longer whether next wave markets can complement FLAPD. The point is whether Europe can scale them fast enough to avoid creating a sovereignty bottleneck of its own making.

Operators are lining up to invest in these markets, and governments need to match this enthusiasm. We’ve consistently been struck by how cooperative local councils have been, and this needs to be reflected on a national level.

Significant investment is needed to ensure that access to power in these cities improves. Despite their rapid growth, Europe’s Tier 2 markets supplied just 850MW in 2024 — less than a quarter of the 3,610MW across Tier 1 markets. Closing that fourfold gap will require governments to prioritise access to power. Without serious public investment in grid capacity and renewables, scaling in these markets will quickly become challenging.

Governments should start by treating next wave markets as strategic infrastructure, not speculative real estate. That means fast-tracked grid connections for projects that meet clear sovereignty and sustainability criteria, smoother permitting so viable sites are not trapped in years of local process, and public-private investment in renewables, storage and heat reuse so new capacity strengthens, rather than strains, local energy systems. It also means aligning sovereign cloud procurement with physical capacity planning: if Europe is going to mandate that sensitive workloads sit under European control, it must be equally serious about where those workloads will actually be hosted.

This should also be linked directly to Europe’s emerging cloud and AI agenda. The forthcoming Cloud and AI Development Act is expected to focus on improving conditions for data-center investment, increasing secure EU-based cloud and AI capacity, and supporting the objective of tripling EU data-center capacity within five to seven years. That target will not be delivered by squeezing still more capacity out of Frankfurt, London, Amsterdam, Paris and Dublin alone.

Data sovereignty will not be decided only in Brussels procurement frameworks. It will be decided in the grid queues, planning offices and next wave cities where Europe’s next generation of compute is actually built.