Credit: Adobe StockData Centres: The Goldmine and the Landmine in European Real Estate
Explosive European data centre demand confronts managing grid constraints, obsolescence, market liquidity, and regulatory hurdles
October 30, 2025Real Estate
Written by Helen Richards
Key Takeaways:
Data centres are quickly becoming a central focus in the commercial real estate landscape, driven by the relentless expansion of digital infrastructure, cloud services, and Artificial Intelligence (AI).
For market leaders, understanding this sector is critical. While offering "goldmine" potential with explosive demand, the data centre market is also fraught with complexity, presenting significant "landmines" if not expertly navigated.
In the GRI Barometer 2025, data centres ranked third in opportunities, with 38% of participants voting for the segment, highlighting how investors are proactively aligning capital with technology-driven assets.
Crucially, Europe’s constrained power grid acts as a natural barrier to entry. This limited supply coupled with soaring demand works in favour of existing, well-positioned operators, preventing an immediate oversupply of capacity.
The disparity is stark: AI compute capacity in European data centres is currently estimated at only 5% of the US's 75%. While AI demand in Europe is real and growing, the US market is one step ahead, driving larger-scale development.
Many European customers are reserving space for future AI needs, but the immediate investment scale lags significantly behind the US.
Beyond grid constraints, new laws, such as the German Energy Efficiency Act, mandate extremely low Power Usage Effectiveness (PUE) ratios. Failure to meet these future standards, which are likely to be adopted across Europe, severely threatens obsolescence for older data centres.
The pressure is high to use 100% renewable energy, a major challenge when the current grid only provides around 40% renewables. Not to mention, the social and political resistance due to the massive power consumption and low local employment rates of data centres.
Developers frequently proceed on a speculative basis, building large facilities before a tenant is secured, and thus exposing capital to the risk of being trapped in large-scale projects lacking a customer.
"Landmines" are defined as remote assets with secured power but without a prime location or strong market. The market faces general skepticism due to weak exit opportunities and the concentration of value in technology rather than traditional real estate fundamentals.
Accommodating this density requires a completely different infrastructure, often including liquid cooling systems. Any facility not built to these higher-density standards faces a strong potential for rapid obsolescence.
Developers must build for the future by designing facilities for high power density and liquid cooling to create an AI-ready asset. The ideal data centre for future liquidity is one that is modularly constructed, allowing for phased development to better align with secured customer demand and ensure the use of the latest technology over time.
Ultimately, success requires recognising that the sector's value is concentrated in technological and operational excellence, not just the physical real estate.
Join the conversation with the leading players in the European data centre real estate market, at GRI Data Centres Europe 2025 on 18th November in London.
Key Takeaways:
- AI is driving explosive data centre demand, but Europe severely lags behind the US in compute capacity due to constrained power grids and lower investment.
- The sector poses high financial "landmines," including low liquidity, speculative development risk, and rapid technological obsolescence caused by the shift to high-density AI infrastructure.
- Future success requires building AI-ready, modular facilities in prime locations to mitigate regulatory risks and structural power challenges, ensuring long-term asset value.
Data centres are quickly becoming a central focus in the commercial real estate landscape, driven by the relentless expansion of digital infrastructure, cloud services, and Artificial Intelligence (AI).
For market leaders, understanding this sector is critical. While offering "goldmine" potential with explosive demand, the data centre market is also fraught with complexity, presenting significant "landmines" if not expertly navigated.
Demand Dynamics: The Goldmine Potential
The European data centre market is experiencing a profound surge, with demand projected to triple in gigawatts by 2030. This intense growth is fuelled by structural technological transformations, making the sector highly attractive.In the GRI Barometer 2025, data centres ranked third in opportunities, with 38% of participants voting for the segment, highlighting how investors are proactively aligning capital with technology-driven assets.
Crucially, Europe’s constrained power grid acts as a natural barrier to entry. This limited supply coupled with soaring demand works in favour of existing, well-positioned operators, preventing an immediate oversupply of capacity.
The US vs. Europe: A Critical Investment Gap
A significant challenge for Europe is the competitive gap with the United States. The US benefits from cheaper power and notably larger investments in AI data centres.The disparity is stark: AI compute capacity in European data centres is currently estimated at only 5% of the US's 75%. While AI demand in Europe is real and growing, the US market is one step ahead, driving larger-scale development.
Many European customers are reserving space for future AI needs, but the immediate investment scale lags significantly behind the US.
Developers must build for the future by designing facilities for high power density and liquid cooling to create an AI-ready asset. (Credit: Adobe Stock)
Navigating the Landmines: Key Risks and Challenges
Despite the robust demand, the data centre sector presents unique and substantial risks that demand a high level of expertise and capital.Power, Infrastructure, and Regulatory Hurdles
The constrained power grid is the single largest impediment in Europe. Approving and installing grid and high-voltage connections causes significant project delays. This risk is compounded by hyperscalers, who often include clauses allowing them to walk away from contracts in case of severe power supply setbacks.Beyond grid constraints, new laws, such as the German Energy Efficiency Act, mandate extremely low Power Usage Effectiveness (PUE) ratios. Failure to meet these future standards, which are likely to be adopted across Europe, severely threatens obsolescence for older data centres.
The pressure is high to use 100% renewable energy, a major challenge when the current grid only provides around 40% renewables. Not to mention, the social and political resistance due to the massive power consumption and low local employment rates of data centres.
Liquidity and Investment Constraints
The data centre market is distinctly less liquid than commercial real estate, operating with a smaller pool of unique investors. Banks and large lenders are often hesitant to finance projects outside the top seven cities - London, Frankfurt, Amsterdam, Paris, Dublin, Milan, and Madrid - making debt harder to secure for regional developments.Developers frequently proceed on a speculative basis, building large facilities before a tenant is secured, and thus exposing capital to the risk of being trapped in large-scale projects lacking a customer.
"Landmines" are defined as remote assets with secured power but without a prime location or strong market. The market faces general skepticism due to weak exit opportunities and the concentration of value in technology rather than traditional real estate fundamentals.
The AI Infrastructure Shift and Obsolescence
The transition to AI-ready facilities introduces significant design and cost complexity. Standard collocation racks require around 10 kilowatts, but AI racks need 100-200 kilowatts per rack.Accommodating this density requires a completely different infrastructure, often including liquid cooling systems. Any facility not built to these higher-density standards faces a strong potential for rapid obsolescence.
Strategic Recommendations for Success
To capitalise on the goldmine while mitigating the landmine risks, investors should focus on strategic development and asset characteristics. It is crucial to prioritise assets in prime, established markets where power constraints are manageable.Developers must build for the future by designing facilities for high power density and liquid cooling to create an AI-ready asset. The ideal data centre for future liquidity is one that is modularly constructed, allowing for phased development to better align with secured customer demand and ensure the use of the latest technology over time.
Ultimately, success requires recognising that the sector's value is concentrated in technological and operational excellence, not just the physical real estate.
Join the conversation with the leading players in the European data centre real estate market, at GRI Data Centres Europe 2025 on 18th November in London.