It should be a boom time for the UK data centre industry. Demand is voracious and the profits on development alluring, so it’s unsurprising to see traditional warehouse landlords such as Segro (SEGR) and Tritax Big Box (BBOX) increasing their exposure to this critical infrastructure. Yet industry insiders are concerned that the UK will fall behind due to constraints on building and operating this new infrastructure.
Power is the primary worry. The UK’s data centres nearly all support cloud services, most notably those provided by Microsoft (US: MSFT), Amazon (US:AMZN) and Alphabet (US: GOOGL).
You can find them on the outskirts of cities, where cloud service demand is greatest, in concentrated clusters called availability zones. Slough and Park Royal in West London are two examples.
These zones’ power requirements have risen as more data centres have come online, but developers and their prospective tenants no longer have sufficient confidence in future power accessibility.
“The government needs to make grid connections easier to get hold of,” Segro chief executive David Sleath told Investors’ Chronicle when the company reported results on 20 February.
Read more from Investors’ Chronicle
Successful applicants in 2026 can look forward to a connection a whole decade later, a timeline wholly out of sync with burgeoning data centre demand.
Opportunistic developers, who aim to flip land after gaining planning permission and access to power, comprise most of the queue.
“It has clogged up our application system, which wasn’t designed for what’s happening now,” said Andrew Jay, head of Europe data centre solutions at CBRE, a broker, in reference to the government’s first come, first served application process.
Egalitarian though this may be, established developers with proven records such as Equinix (US:EQIX) and Digital Realty (US:DLR) have to wait longer as a result, discouraging them from pursuing much-needed investment.
The government’s roll-out of AI growth zones, which will confer as yet unspecified advantages for data centres, may have unintentionally stimulated speculation.
The government intends to implement a new ‘gateway’ system to remediate this issue, but some fear that a stalemate will ensue, where tenants are reluctant to sign lease agreements without a guaranteed grid connection, which the government in turn is averse to granting without a pre-lease agreement as proof of demand.
“We’d hope that common sense will prevail and they’ll look at the feasibility of the project and the track record of the provider,” said Dame Dawn Childs, chief executive of Pure DC, a data centre provider with 500 megawatts (MW) of capacity either operational or under development, including a 56MW joint venture with Segro. Data centre capacity is measured in megawatts as electricity supply determines the computing power available.
More capable and efficient electricity transmission would help. The government has earmarked £90bn of investment into the UK grid by 2031 to address this, but the benefits will take time.
As it is, ongoing reassessments of grid capacity and needs can result in delays to power connectivity for data centres. National Grid (NG.) has pushed back a 400MW connection upgrade for Segro’s site in Slough by two years to 2029 and a connection to a Pure DC development in Brent Cross, north London, by an eye-watering 11 years to 2037.
All this risks deterring investment. “Capital is keen and sees the benefits but it is inhibited by power issues,” said Jay. That the UK is not alone in this regard offers a degree of comfort, although it also leaves a dearth of models for the country to replicate.
Costing the earth
The cost of industrial electricity in the UK is also prohibitive. At 25p per KW hour (2024 average), it far exceeds the likes of Spain (11p), Denmark (9p) and Finland (6p). Beyond Europe, Saudi Arabia is offering discounted electricity and India tax breaks in order to encourage investment.
“You’re not going to get any discretionary data centre investment [as a result],” said Childs, in reference to the AI-oriented data centres that enable large language model training and inference. These are more location-agnostic than their cloud-focused counterparts.
An increase in private, or ‘behind the meter’ power sources for developments may result. Drax (DRX) is developing options for its 4GW Yorkshire power plant to provide 1.2GW of private power for data centres, with an initial 100MW potentially operational as soon as next year, albeit initially via the public grid.
Whether the cost of this power would be low enough to attract AI-oriented development remains to be seen.
Beyond power, developers are also concerned about securing planning approvals, particularly the need to win over local communities, and supply chain resilience, most notably a dearth of construction workers and engineers.
Developers completed new data centres in Frankfurt last year that had a combined 241MW of power capacity, comfortably ahead of London’s 193MW, itself a record year. While London’s total capacity still exceeds that of its rival European financial centres, it could easily be overtaken if other cities speedily resolve their own connectivity issues, enticing greater investment and employment in the process.
“It’s a space race right now,” said Segro chief executive Sleath. “Hyperscalers will put capacity wherever they can get planning and power.”