Market Radar Europe: Can Europe win the high-stakes AI infrastructure race?

► Europe’s high-stakes AI infrastructure race

Redefining Digital Infrastructure

Although the US remains the clear global leader in data centre infrastructure with 5,427 facilities, Europe is rapidly scaling to support the artificial intelligence boom, according to the AI Index Report 2026 from Stanford HAI. 

While Germany, the UK, and France boast the highest counts in the region, investment has historically been concentrated in the traditional FLAP-D markets: Frankfurt, London, Amsterdam, Paris, and Dublin. 

However, sheer facility numbers do not fully capture the massive computing capacity and energy requirements of modern workloads. These unique demands are fundamentally reshaping how, and where, European digital infrastructure is built.

Grid Constraints and the Energy Crunch

Europe's ambition to rival the US and China in AI is being severely hindered by overwhelmed electricity grids. Advanced AI clusters now consume as much energy as 250,000 European households, leading to grid connection queues of up to 13 years in major hubs. 

This profound energy crunch has forced cities such as Frankfurt and Amsterdam to implement moratoriums on new facilities, while high electricity prices have already caused companies such as OpenAI to pause significant investments in the UK. 

To avoid creating economically and environmentally unsustainable stranded assets, experts warn that data centres must be regulated as critical energy infrastructure and integrated directly into national grid planning.

The Rise of Alternative Hubs

With core markets suffering from extreme delays and vacancy rates below 8%, capital is flowing into alternative European hubs that offer reliable energy, resilient broadband, and clear regulatory pathways. 

Portugal is rapidly emerging as a primary destination, boasting over 2.6 GW of planned IT capacity. Mega-projects including the 1.2 GW Start Campus in Sines leverage unique seawater cooling solutions and renewable energy to support advanced AI deployments.

Similarly, Croatia is set to host the largest private investment in its history with Pantheon Atlas unveiling plans for a USD 58 billion, 1 GW hyperscale AI campus in Topusko. Designed to mitigate Europe's compute shortage, the facility will be powered by a massive 5.2 GW of new renewable energy and battery storage, allowing it to bypass the gridlocks of traditional European corridors.

Sustainability and the Green Transition

As global data centre electricity consumption rises, ensuring that digitalisation supports the EU's green transition is a critical priority. 

The European Environment Agency (EEA) recently warned that without clear regulation, the resource-intensive demands of AI could deepen strategic dependencies and hinder climate goals, as efficiency gains alone cannot offset the sector's growing footprint.

In response, built environment and finance organisations have formed the Greening Artificial Intelligence Data Centre Coalition (GADCC) to set transparent sustainability benchmarks, prevent greenwashing, and foster green finance instruments. 

Simultaneously, companies are innovating to bypass grid constraints entirely. UK energy firm Centrica has partnered with Delta Electronics to deploy solid oxide fuel cell systems, providing fuel-flexible, off-grid energy generation capable of running on natural gas, hydrogen, or biogas.

Next-Generation Facilities Meeting Demand

Despite these systemic challenges, developers are successfully pushing forward with next-generation projects designed for high-density computing and maximum efficiency. 

Schneider Electric and GreenScale are partnering to develop standardised, AI-ready architectures for European campuses, integrating digital twin technology and predictive analytics to reduce lifecycle costs.

In the UK, the intense demand for sustainable space is illustrated by major new joint ventures. SEGRO and Pure Data Centres Group recently secured planning consent for a GBP 1 billion, 72 MW liquid-cooled hyperscale facility in West London, which circumvents local power limits by incorporating a dedicated substation. 

Meanwhile, Castleforge and Galaxy Data Centers have greenlit a GBP 200 million expansion in Redhill that will capture waste heat and export it to a neighbouring residential network. 

► For the latest insights on the sector, join us for our GRI Virtual Roundtable - Data Centres 2026, online on 17th June
 

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► UK Property Markets face election Chaos

Macroeconomic and Political Volatility

The UK commercial real estate sector is navigating a period of profound macroeconomic and political volatility. Following yesterday’s (7th May) local elections, the industry faces the prospect of fractured local governance, with many councils falling under no overall control. 

The rising influence of the Green Party and Reform UK threatens to complicate planning frameworks with competing mandates on rent controls, low-tax policies, and net zero regulations.

This instability coincides with the severe geopolitical energy shock from the Middle East, which drove UK inflation to 3.3% in March. Consequently, interest rates on 30-year UK government bonds have climbed to 5.77%, reaching their highest level since 1998. 

While financial markets have priced in rate hikes to 4.25% by the end of the year, the Bank of England maintains that the energy shock could naturally weaken demand and reduce inflation without the need for further monetary tightening.

Investment Resilience and Lending Growth

Despite these fierce headwinds, the UK property market continues to demonstrate underlying resilience. In the first quarter of 2026, commercial real estate investment volume reached GBP 10.8 billion, representing a 16% increase over the same period in 2025. 

Occupier demand remains robust, particularly in the industrial and South East office sectors, supported by a broader flight to quality and the emergence of artificial intelligence and data centre transactions. 

This activity is illustrated by major deals such as Daibiru Corporation's GBP 300 million investment in Warwick Court, alongside significant logistics lettings by Farmfoods and Third Space.

Furthermore, net withdrawals from UK property funds slowed significantly in April, suggesting a recovery in investor sentiment following asset repricing. This transactional activity is underpinned by a highly competitive lending market. 

According to a Bayes Business School report, new lending for UK commercial real estate hit a decade high of GBP 52.7 billion in 2025, rising 29% year-on-year. Alternative lenders and debt funds emerged as the clear winners in this space, capturing a 28% market share as back leverage fuelled origination volumes.

Regulatory Shifts and the Ban on Upward-Only Rent Reviews

Compounding the economic uncertainty, the industry is absorbing a fundamental shift in leasing legislation. 

The English Devolution and Community Empowerment Act 2026, which received Royal Assent in April, introduces a comprehensive ban on upward-only rent reviews across all commercial business leases. 

While full implementation via secondary regulations is not expected until 2027 or 2028, a retrospective clause catches renewal options and tenancy arrangements entered into on or after 17th March.

This landmark regulation empowers tenants to trigger downward reviews in a declining market, prompting landlords to re-evaluate their asset management strategies and income models. 

Consequently, market experts predict a structural shift toward alternative leasing frameworks, including higher headline rents, shorter lease lengths, fixed stepped increases, and a greater reliance on indexation.

A Unified Industry Response

To combat this complex web of regulatory, political, and economic challenges, the property industry has consolidated its advocacy efforts, with the British Property Federation, the Association of Real Estate Funds, and the Investment Property Forum officially merging to launch Real Estate:UK.

This unified lobbying body represents a combined market valued at GBP 949 billion, giving a single, powerful voice to institutional investors, developers, and asset managers. 

As the government focuses on housing delivery and economic growth, Real Estate:UK aims to attract international capital from the US and other global markets, improve development frameworks, and defend the sector's interests amidst sweeping legislative reforms and ongoing macro volatility.
 

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► EU slashes regulations to spark growth

Energy Crisis and the Return of Stagflation

The European Union is confronting a severe stagflationary shock, driven by the escalating conflict in the Middle East and the continued closure of the Strait of Hormuz. As Eurozone growth slowed to a marginal 0.1% in the first quarter of 2026, inflation accelerated to 3% in April. 

This inflationary wave has triggered a domino effect across the continent, beginning with transport fuels, such as a 31% jump in French diesel prices, and rapidly spreading to industrial chemicals. Firms including BASF and LANXESS are implementing price hikes of up to 50% for various additives and polymers. 

Additionally, these pressures are now cascading into consumer goods, prompting major retailers and food producers, including Next and Lactalis, to pass mounting overheads onto households.

Emergency Measures and Targeted Interventions

The crisis has placed European policymakers on high alert. During a recent Eurogroup meeting, finance ministers warned that a prolonged blockade poses a critical risk to the regional economy, particularly for net energy importers. 

While the European Commission (EC) has floated emergency measures, such as redistributing jet fuel and releasing reserve stocks, officials stress that future financial interventions must be targeted, temporary, and fiscally sustainable to avoid repeating the untargeted market distortions of the 2022 energy crisis. 

With the US flip-flopping on its plan to escort commercial vessels amidst a fragile ceasefire and talks of a peace agreement, the EC’s Valdis Dombrovskis confirmed that the bloc must prepare for stalled growth and inflation reminiscent of the 1970s oil crisis.

Deregulation and the Push for Competitiveness

To offset these macroeconomic headwinds and boost regional competitiveness, the EU is undertaking a major effort to deregulate its underperforming economy. Currently, administrative red tape and national "gold-plating" of rules cost European businesses EUR 150 billion annually, equivalent to nearly 1% of GDP. 

In response, the EC is advancing "omnibus" bills to streamline reporting for smaller firms, "services passports" for the telecoms sector, and a "28th regime" of corporate rules to simplify cross-border operations for startups. 

If successful against member state resistance, these reforms could reduce administrative burdens by EUR 37.5 billion by 2029 and boost GDP by 3% over the next decade.

The Circular Economy Act and Resource Security

Simultaneously, the bloc is accelerating its transition toward a sustainable, resilient economic model to secure critical supply chains against future geopolitical shocks. 

The EC is currently holding high-level discussions on the Circular Economy Act, a landmark piece of legislation aimed at recovering critical raw materials from waste and unlocking the Single Market for circularity. 

This legislative push is heavily backed by a coalition of major businesses, including the LEGO Group, SAP, and TOMRA, who are urging lawmakers to harmonise cross-border standards, adjust VAT to incentivise reuse, and double the region's circularity rate to 24% by 2030.

International Partnerships for Critical Materials

Illustrating this strategic pivot toward resource security, the EU and the Government of India have launched a EUR 15.2 million joint initiative to advance electric vehicle battery recycling. 

Funded through the Horizon Europe programme, the partnership aims to transform battery waste into a "virtual mine" for critical raw materials like lithium, cobalt, and graphite. 

By establishing a joint pilot line in India to scale high-efficiency recovery technologies, the initiative highlights Europe's broader commitment to building resilient, circular supply chains in an increasingly volatile global landscape.

► Don’t miss Europe GRI 2026 Summer Edition on 9th-10th September in Paris
 

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