Data centre investment is increasingly being directed outside traditional markets, as soaring demand for the power-hungry digital infrastructure leads developers to build capacity in alternative locations with access to plentiful affordable electricity.

Figures from fDi Markets shows that more than $106bn of greenfield foreign direct investment (FDI) was committed to data centres worldwide in the first three quarters of 2024, higher than any previous year on record and accounting for a record high 12% share of total greenfield FDI across all industries.

Traditional markets — defined here as the four locations with the most data centre inventory in the first quarter of 2024, according to real estate advisory CBRE — used to attract the lion’s share of capital. But in a rush to meet insatiable demand for computing power and capacity — especially from artificial intelligence (AI) — tech groups and property developers have rushed to construct data centres outside these major hubs, shown in the chart below as secondary markets.

Large cloud computing and AI-focused data centres require large plots of land and consume considerable power — both of which are expensive and in short supply in major cities. This fact, alongside local opposition to new data centres in major cities, has driven investors to invest in more sparsely populated areas with available power, such as Aragon in Spain, Northumberland in the UK and the US rust belt.

The four largest data centre markets in Europe — Frankfurt, London, Amsterdam and Paris (FLAP) — had attracted at least 20% of the region’s total data centre FDI every year between 2010 and 2023, fDi Markets shows. But in the first nine months of 2024, FLAP markets made up less than 10% of the $50.5bn of greenfield data centre FDI announced across Europe. 

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The Asia-Pacific region’s traditional markets — Singapore, Tokyo, Hong Kong and Sydney — attracted around three-quarters of total data centre FDI in 2010, a figure that fell to an all-time low of 5% in 2023 before recovering to 36% this year. 

In the case of Singapore, the “city state cannot grow beyond its metro boundaries and the heavily constricted availability of real estate and power are limiting its ability to satisfy data centre capacity demands,” explains John Dinsdale, chief analyst at Synergy Research Group, who adds this has led Malaysia and Indonesia on its doorstep to capture data centre investments.

Latin America also experienced far greater investment in secondary data centre markets than major hubs in recent years. North America, where the four major data centre hubs are all located in the US, follows a similar trend for both FDI and domestic investment. Around 60% of the world’s hyperscale data centre operators are headquartered in the US and account for the majority of global data centre investment.

Paul Mortlock, head of European data centre capital markets at CBRE, notes that a standard modern cloud data centre can cost between €600m and €700m, adding that “there is only a small selection of investor groups with the ability to deploy capital at the volume required”. 

Global demand for data centre capacity could increase from 55 gigawatts (GW) today to anywhere between 171GW and 298GW by 2030, when an expected 70% of total data centre demand will be for advanced-AI workloads, according to McKinsey, a consultancy. Pankaj Sachdeva, senior partner at McKinsey, expects “the shift to more distributed facilities to accelerate” as AI-focused data centres seek out cheaper locations, while “lower latency” applications such as trading platforms will pay a premium for data centres to be close to major cities and populations. 

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