Data Centres

Key Takeaways 

• Growing demand sending rents up
  Despite the change in the overall economic environment, the demand for data center capacity in Germany is not faltering. The discrepancy between supply and demand enables data center operators to continue to pass on the higher costs to customers.
• Operators under pressure from new legal position
  The minimum standards placed on energy efficiency in data centers (DC), as defined under the German Energy Efficiency Act (EnEfG) from 2023, necessitate some investment in existing data centers. Despite a grace period through to 2027, optimization investments have to be carried out as early as 2024 in order to comply with the PUE limit of 1.5.
• Ongoing specialization of customer requirements 
  Different applications have always required the different data center infrastructures.  In 2024, the growth in the demand for high-performance computing (HPC) will intensify this trend. Data center operators will need to adjust the technical infrastructure or reject customer requests for higher power density.
• Growth in regional markets
  An increase in latency-critical applications, stronger demand for AI training environments, and bottlenecks in the core market of Frankfurt will sharpen the long-term interests of investors and strengthen DC operators’ expansion goals of DC operators in the regional markets. This will not change Frankfurt’s dominance as this core market is also experiencing strong growth.  
• Artificial intelligence and sustainability still the hot topic
  The relevance of sustainability and artificial intelligence that spans all sectors elevates these two topics to key issue status within the data center sector in 2024. The use of waste heat generated by data centers is set to play an important role here. Although the majority of data-center-related AI implementations in Germany will take place in 2025, excess demand for capacity will already make itself felt this year.

Digital sector becoming a desirable asset class

Germany, and Frankfurt in particular, is increasingly evolving into a future-proof location for offering data center services in Europe. A central European location, a strong local buyer’s market, stable electricity grids, clear legal certainty, and yields with low volatility are drawing in more investors. The data center asset class has firmly established itself in the last three years and, following initial skepticism, many players consider the new regulation (German Energy Efficiency Act (EnEfG)) as a medium-to-long-term pull factor. The investment volume in data center infrastructure is driven by general market growth, the sustainable integration of data centers embedded in the local infrastructure by way of heat recovery and utilization, along with other synergy effects, all of which creates value added for the asset class.

Relevance and acceptance of a growing sector 
Alongside the scarcity of land and long waiting times in power procurement, approval procedures constitute a key challenge for data center operators. Public relations work, better media presence, and enhancing the visibility of the ecological and economic advantages of data centers have fostered acceptance of this asset class at social and at political levels. Decision makers are now more familiar with the features, requirements and advantages of data centers, which will have a positive impact on public debate, along with local regulations and approval procedures. 

Local markets gaining a firmer foothold
Interest in local markets is on the rise, driven by the process of rationalizing hyperscalers (AWS, Google, Microsoft). Now that significant growth has been recorded in Berlin, markets such as Munich and Düsseldorf are eliciting attention from data center operators and investors.

Development of the data center market in Frankfurt by megawatt (MW)

Source: CBRE Research