CBRE predicts strong growth for European colocation firms in 2023, but suggests tough times ahead

The major colocation hubs of Europe are expected to see record amounts of take-up in 2023, but CBRE predicts the softening demand for cloud services could lead to a decline in how much datacentre capacity the hyperscalers want in the future.

The real estate advisory has published the latest version of its quarterly colocation market tracker, which keeps tabs on the supply and demand rates for colocation capacity in the major European hubs of Frankfurt, London, Amsterdam, Paris and Dublin (FLAPD).

The tracker report predicts the FLAPD markets are all “poised for another year of considerable growth” despite a notably downbeat performance – in supply and take-up terms – during the first quarter of 2023.

During the first three months of 2023, 2.9MW of supply came on to the market, which is the lowest amount delivered in any quarter for more than 11 years, confirmed CBRE, but it said a “substantial increase in supply” is expected to occur during the second half of 2023.

The same quarter also saw 28MW of colocation take-up too, which is a fraction of what occurred in the previous quarter, when there was 202MW of take-up reported.

Despite this, and the economic uncertainty in Europe, CBRE is forecasting a total of 480MW of colocation take-up during 2023.

Specifically, it predicts more than half (56%) of this take-up will occur in Frankfurt and London, with the hyperscale cloud and internet giants expected to be responsible for the majority of it.

In the long-term, though, CBRE said it anticipates a slowdown in due course in terms of hyperscale demand, given the likes of Amazon Web Services (AWS) and others have reported a slowdown in their annual growth rates during their most recent run of financial results.

“Demand on the part of the hyperscalers, the industry’s largest customers, is expected to remain strong for the foreseeable future, though their collective appetite for capacity is expected to decline in concert with lower growth rates,” the CBRE report stated.

“As a result, the medium- to long-term outlook is less certain for providers as the higher cost of capital, labour and power shortages – and long equipment lead times across Europe – will make the delivery of projects more difficult, with profitability harder to ascertain.”

Kevin Restivo, director of European Data Centres Research, said that despite the macroeconomic challenges the sector is facing, 2023 is on course to be a good year.

“We expect momentum to gather over the year in the FLAPD markets as operators deliver facilities to meet growing levels of demand,” he said. “As a result, we are on track for unprecedented levels of new supply this year, much of which we expect to be pre-let to single tenants, notably in the tech sector.”