William Marshall of DLA Piper Ireland

A new report from the global law firm finds that total investment increased from $24.4 billion in 2020 to $59.5 billion in 2021, while the number of transactions increased by 64 per cent in the same period, from 69 in 2020 to 117 in 2021.

The report is based on a survey of 100 senior executives from infrastructure, equity and debt provider firms and data centre developers from around the world and follows a similar report carried out in 2020.

In 2022 so far, there have been 41 transactions worth $21.3 billion, an increase of over 100 per cent compared to the same period last year. In terms of future plans, 45 per cent of developers, 56 per cent of debt providers and 67 per cent of equity investors say they are planning to invest in four or more data centre projects in the next 24 months.

The record-breaking demand for data centres is driven by the growth of hyperscalers, such as Facebook, Google and Microsoft, which have thrived amid the transition to cloud service which has itself been escalated by the pandemic, the report says.

Although data centre investment has been mainly targeted in the US and Europe, the Asia-Pacific (APAC) region is expected to be the biggest source of future growth.

Despite 70 per cent of respondents considering US data centre assets to be overvalued, the country accounts for almost half of global hyperscale capacity and has the biggest pipeline of data centre projects. However, 79 per cent of respondents chose China as one of the top three countries they expect to see the biggest growth in investment over the next 24 months, followed by India (56 per cent) and the US (54 per cent).

Energy security is increasingly viewed as one of the most significant factors shaping data centre investment. 90 per cent of equity investors, 89 per cent of developers, and 85 per cent of debt providers would pay a premium to invest in a site with a good and cost-effective power supply.

Global gas and electricity prices have soared in the past 12 months, impacting greatly on data centre operating costs. By region, senior executives in APAC are most likely to pay a premium for energy security, at 98 per cent, compared to 82 per cent in Europe and 80 per cent in the US. APAC’s willingness to pay a premium for energy security may be a result of rolling power outages in China and India in the second half of 2021.

ESG is another significant factor shaping data centre investment. Almost all senior executives (94 per cent) say that scrutiny and due diligence surrounding ESG issues increased in the past 24 months, so much so that 75 per cent of debt providers and equity investors and 70 per cent of developers would pay a premium to invest in a site with very good to excellent ESG credentials.

However, the level of commitment to ESG varies between regions, with 84 per cent of those in Europe and 80 per cent of those in the US willing to pay a premium for a site with very good to excellent ESG credentials, compared to just 56 pe rcent of those based in APAC.

William Marshall, energy practice legal director at DLA Piper in Ireland, said: “Globally, our report reveals that although the data centre industry is booming across the board, Western Europe and the US are currently the most mature markets. This demand is likely to continue as the investment to date in 2022 has more than doubled for the same period in 2021.

“Locally in Ireland, operators are aware of the expectations from minister Eamon Ryan that data centres will have to fit into Ireland’s climate targets. Data centres are energy-intensive and the question around security of supply, availability of materials and rising energy prices are all key considerations in the decision process of where and how data centres are developed.

“Grid constraints and related policy are also significant issues for any Irish project to examine. An energy-efficient data centre is attractive and if the energy used is also renewable then it becomes an even more compelling proposition from an ESG perspective.”