How will growth of data centre market impact North’s industrial sector?

Around 400 acres across the country has been acquired for data centre development this year, the vast majority of which was previously earmarked for logistics space.

The growing data centre sector means there is growing competition for industrial land, which is already in short supply in many places.

Good news and bad news

While this is good news for developers and landowners hunting for the best deals and highest returns, the growth of the data centre market could potentially be bad news for occupiers.

In many parts of the country, particularly the North West, there is already a shortage of options for companies looking to expand or relocate, according to research by Savills.

In theory, the more reliant the world becomes on data centres – giant metal sheds filled with powerful computer servers that support our increasingly online society – the harder it will be to find land for e-commerce warehouses and supermarket distribution hubs.

This will drive vacancy rates down and push rents up nationally, while limiting direct job creation; data centres employ significantly fewer people than factories or warehouses.

The opportunity

The opportunity for the North is “massive” when it comes to data centres, according to Savills’ head of logistics research for EMEA Kevin Mofid, but occupiers are right to be wary.

While supply is rising, driven by second-hand space returning to the market, the amount of new-build space completing is down in many regions. This situation is expected to be exacerbated by the growth of the data centre market.

“For traditional warehouse occupiers it means less choice than they have had, which has never been huge anyway,” Mofid said.

“If you’re a holder of land or a developer – and if that land has lots of power – chances are it might be suitable for a data centre.”

He added: “The North West has the least development land historically but is second [nationally] in terms of leases.

“There is occupier demand in the North West but the question is: can that demand be satisfied?”

The North’s role

The North, where the supply of large industrial units is already constrained compared to the Midlands and the South, is expected to be disproportionately impacted by the data centre boom.

This is because former industrial areas like in Greater Manchester, Yorkshire, and the North East boast a relatively high number of sites with good power connections – making them ideal candidates for power-hungry data centres.

Plans for large-scale data centre campuses are already in the works across the North. In Blackpool, the council is pushing the idea of Silicon Sands. In Northumberland, Blackstone is forging ahead with plans to build data centres on the site previously earmarked for the £3.8bn Britishvolt factory. And in Leeds, Microsoft has bought a 48-acre site at the former Skelton Grange power station site near Leeds to build another hyperscale datacentre.

A reality check

Despite this increase in activity in the sector – Barbour ABI expects 72 data centre projects to start on site in the UK over the next 12 months – there will come a point when land for this kind of project runs out.

“The vast majority of industrial land is not suitable for data centres for one reason or another,” said Cameron Bell, a director in Savills EMEA data centre team.

It is certainly not a case of any site will do for data centres. They need to be secure, close to power, and far enough away from busy roads and rail lines to avoid vibrations that might disrupt connections, Bell explained.

This lack of sites could be a huge problem for the UK, which requires ever more digital infrastructure to keep pace with industry’s push towards automation and digitisation.

They are also extremely expensive to develop, north of £10m per megawatt, according to Bell. That adds up when you consider the average requirement for a data centre is 100MW.

The good news is that data centres are being looked upon favourably by the government, which plans to designate them as critical infrastructure.

This will speed up their delivery and avoid the disappointment large-scale industrial schemes often experience at the hands of local planning authorities or the Planning Inspectorate.

Expect to see even more data centre development in 2025 as the sector looks to make hay while the sun shines.