Partner London
"The data centre sector contributes an estimated $6.4bn in Gross Value Added annually to the UK economy, supporting 43,500 jobs and generating around £640m in tax revenue."
In 2024, the UK was home to the highest number of data centres in Western Europe. With around 250 active facilities across 72 cities, the market was valued at approximately US$10.7bn. The data centre sector contributes an estimated US$6.4bn in Gross Value Added annually to the UK economy, supporting 43,500 jobs and generating around £640m in tax revenue.
The sector is projected to reach US$22.7bn by 2030 due to unprecedented demand for capacity fuelled by cloud services, the 5G rollout and the Internet of Things. Another major catalyst for growth is the AI revolution. Generative AI and advanced analytics require immense computing power, driving demand for “AI-ready” data centres.
Earlier this year the UK unveiled the AI Opportunities Action Plan (the “AI Plan”) – a policy roadmap positioning AI at the heart of economic growth, backed by substantial data centre development. The plan introduced “AI Growth Zones” to fast-track planning approvals for data centres and enhance their energy grid access. These zones focus on reviving former industrial areas by attracting data centre investment. Companies such as Vantage Data Centres, Nscale and others have announced US$19bn of new UK data centre projects aligned with the AI Plan, expected to create over 13,000 jobs across the UK. Keir Starmer noted: “AI offers opportunities we can’t let slip… [we will] speed up planning… give [data centres] better access to the energy grid and draw in investment from around the world”.
This surge in market growth comes alongside government recognition of data centres as critical infrastructure and reforms to streamline their development. In September 2024, the UK Government designated data centres as Critical National Infrastructure (“CNI”), the first new CNI sector added since 2015. This designation places data centres on par with priority sectors like energy, water, and transport. The CNI designation is expected to usher in a more secure and stable investment environment for data centre expansion, potentially including streamlined regulations, faster planning processes (including in the Green Belt) and even fiscal incentives.
Another notable trend is the geographical shift. London and the South East of England remain dominant data centre hubs. However, grid capacity strains, costs, and the drive for reduced latency, are pushing investment to other parts of the UK, particularly Northern England, Wales and Scotland.
Challenges and Opportunities
Planning
Perhaps the most critical factor in translating this momentum into delivered projects in the UK is navigating real estate and planning frameworks. Data centres have unique requirements:
• large land parcels sufficiently close to major cities;
• robust and significant power connectivity; and
• proximity to fibre routes.
These needs can clash with traditional planning priorities. Developers have faced scepticism from local planning authorities, who have historically viewed data centres as low-employment, power-hungry users and questioned their local benefits.
One of the thorniest planning issues for data centres in the UK is the Green Belt – protected land around cities where development is tightly restricted. By their nature, data centres often seek large, inexpensive sites which sometimes lie on urban fringes. Historically, building on the Green Belt required demonstrating “very special circumstances” to outweigh the presumption against development. Local authorities often viewed data centres as failing that test; however, the policy tide is turning.
In 2024, the National Planning Policy Framework (“NPPF”) – which guides local planning decisions – was revised to explicitly support data centre growth. Where previously silent, the new version inserts direct references to data centres, requiring that planning policies “pay particular regard to facilitating development to meet the needs of a modern economy”. Data centres are explicitly included alongside laboratories, gigafactories and digital infrastructure. Further, when an authority “cannot meet its identified need for…commercial or other development” within existing urban areas, this can count as an exceptional circumstance to adjust Green Belt boundaries. More immediately, we have seen planning decisions recognise the national need for data centres as a factor constituting “very special circumstances” in site-specific cases.
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"Developers have faced scepticism from local planning authorities, who have historically viewed data centres as low employment, power-hungry users and questioned their local benefits."
Complementing these revisions, the UK Government has moved to allow major data centre projects to use the Nationally Significant Infrastructure Project (“NSIP”) planning regime, depending on the scale of the project. This means that very large data centre schemes could opt to bypass the normal local planning process and instead seek consent via a Development Consent Order – a streamlined process decided at the national level. The NSIP route can be advantageous for critical infrastructure by consolidating approvals and avoiding local political delays.
Green Belt development nevertheless requires careful navigation. Projects need to mitigate visual impact, address any local traffic or noise concerns, and often propose community benefits. Where Green Belt data centres are approved, conditions may nonetheless be imposed by the local authority.
In 2024, England implemented mandatory Biodiversity Net Gain (“BNG”) requirements for new developments. All major projects receiving planning permission must demonstrate a minimum of 10% net increase in biodiversity on or near the site, maintained for at least 30 years. For data centres, which often involve greenfield or semi-natural sites, this means developers need to incorporate significant habitat enhancements. Data centre operators are adapting by engaging ecologists early and exploring on-site nature parks or off-site habitat creation to ensure compliance. Whilst BNG adds cost and complexity, it aligns with corporate ESG goals and can yield community goodwill by improving local green spaces. Where data centres use water for cooling, planning authorities may ask for water impact assessments and there is a growing preference for water-free cooling or recycling systems.
Data centres rely on communications infrastructure governed by the UK’s Electronic Communications Code (the “Code”). The Code (as overhauled by the Digital Economy Act 2017) confers powerful rights on licensed operators (e.g. telecoms companies) to install and maintain apparatus on land. A data centre campus typically hosts multiple telecoms carriers’ equipment. Once a carrier has Code rights on the site, it can be difficult to require them to relocate or remove their equipment. However, the Code also protects existing connections to data centres. Developers of adjoining sites cannot simply cut or move a buried fibre conduit serving the data centre if installed under Code rights without following its procedures.
Construction
The global construction sector’s challenges are particularly acute in data centre development, where specialised requirements intersect with broader industry pressures. The technical complexity of data centre construction demands highly skilled workers, yet the sector faces a growing skills gap – particularly in mechanical and electrical engineering specialties – exacerbated by high turnover among subcontractors and staff. This shortage has led to increased competition for qualified personnel, driving up labour costs and potentially extending project timelines. Early stakeholder involvement has become crucial for identifying and mitigating potential construction risks before they materialise. Moreover, the prevalence of fixed-price contracts and narrow profit margins in the sector heightens the risk of insolvency, making early risk identification even more critical.
The procurement landscape for data centre construction is undergoing substantial reform in response to market pressures and the need for greater cost certainty. Traditional procurement models are being reimagined to address supply chain vulnerabilities and improve collaboration between those setting budgets and those executing projects. The UK Government’s Construction Playbook is driving a shift towards more collaborative contracting models, encouraging early supplier engagement and modern methods of construction (“MMC”). These reforms aim to enhance project delivery certainty and value for money, though implementation remains challenging in the specialised data centre sector. In addition, the increasing use of design and build procurement routes, where contractors assume responsibility for both design and construction, reflects a broader trend towards integrated delivery models. Legal reforms such as the Banner Reforms are expected to streamline processes and reduce delays, potentially improving procurement efficiency and reducing long-term costs.
Insolvency risk within the construction supply chain presents a significant threat to project continuity, particularly given the increasing complexity and scale of data centre projects. Recent high-profile contractor insolvencies have highlighted the vulnerability of large-scale construction projects to cash flow disruptions and delayed payments. In response, data centre developers are increasingly implementing robust due diligence processes and requiring enhanced performance security measures, including parent company guarantees, performance bonds, and latent defects insurance. Some are also adopting project bank accounts and accelerated payment mechanisms to protect subcontractors and maintain supply chain stability. These measures, while adding to initial project costs, are essential in an industry where fixed-price contracts and narrow operating margins leave little room for financial error, especially given that nine out of ten global projects worth over US$1bn in value exceed their budget or miss deadlines.
Energy and Grid
"Given data centres’ reputation for high energy consumption, planning approvals increasingly scrutinise their carbon footprint and energy strategy."
Demand for data centre services is decentralising away from areas such as London and the M25 “Silicon Corridor” to areas with better grid capacity and more abundant (and cheaper) land. As organisations seek lower-cost locations and reduced latency to regional users, cities like Manchester and Cardiff are emerging as digital infrastructure clusters. Whilst decentralisation is positive and aligns with government efforts to “level-up” tech growth nationwide, the lack of available grid connections in such areas is a concern. The AI-driven surge in capacity demand is straining power resources. In 2023, some data centres in the UK were reported to have scaled down operations because their demands could not be met by national grid infrastructure, highlighting the urgency for infrastructure upgrades.
These concerns arise at a time when the UK is going through seismic reform in how it manages grid connections. In short, the new regime is a move towards ‘first ready, first connected’ and away from the previous regime of ‘first come, first served’. This means that projects (even where holding connection offers with a proposed connection date) will not receive full connection offers (and risk losing the proposed connection date) if they do not satisfy certain additional criteria (known as ‘Gate 2 Criteria’).
Grid constraints coupled with data centre energy demands are likely to lead to an increase in so-called ‘behind-the-meter’ on-site energy generation. Whilst on-site generation via private-wire solar generation is likely to feature given its relatively low cost and ease of installation, co-location with battery energy storage systems (“BESS”) is also expected given the advanced nature of the UK BESS market. Technological advantages of BESS assets in providing instantaneous short-term supply and mitigating the wider risk of grid congestion and outages are likely to be of critical importance in the context of data centre development.
Given data centres’ reputation for high energy consumption, planning approvals increasingly scrutinise their carbon footprint and energy strategy. There is also a general industry trend toward “grid-friendly” design, including on-site battery storage to reduce peak load and participation in demand-response programmes. Planners may even condition permission on features such as on-site solar panels.
A novel ESG angle gaining traction in the UK is reusing waste heat from data centres to benefit local communities. Data centres expel large amounts of low-grade waste heat, but new projects aim to capture it for district heating. The UK Government actively supports this through the Green Heat Network Fund – in 2023 it awarded £36m for a heat network in West London to pipe waste heat from data centres to 10,000 new homes. Whilst not yet a standard requirement, demonstrating a plan for heat reuse can significantly boost ESG credentials, especially in urban locations, and endear developers to local planners.
Investment and Financing
The trend of on-site generation, coupled with an expectation that much of the UK market growth will be driven by new (and potentially inexperienced) market entrants, is likely to lead to increased discussion of joint ventures between data centre operators and renewable energy developers. Developers can add value through their knowledge of wider project development concerns, in particular relating to grid connection, which is ever more valuable in the context of the ongoing UK grid reform. Teaming up with energy suppliers early in the development process is also likely to be attractive from a ‘bankability’ perspective with lenders.
The increasing prevalence of new market entrants in the UK data centre market and rapidly escalating demand is expected to fuel an increase in M&A activity, with funds and private equity investors looking to take advantage of growth opportunities.
"Developers and investors in this sector should approach UK projects with a dual mindset: leverage new supportive policies while proactively addressing the challenges that currently come with developing large-scale facilities."
Concluding remarks and looking ahead
The UK is evidently positioning itself as a hospitable environment for data centre expansion through law and policy. It is perhaps one of the most favourable among major economies at present. However, the landscape remains complex, and success will depend on executing projects within the framework of these new rules and societal expectations.
Developers and investors in this sector should approach UK projects with a dual mindset: leverage new supportive policies while proactively addressing the challenges that currently come with developing large-scale facilities. Early engagement with planning authorities is wise to capitalise on the positive policy mood and ensure alignment with local economic strategies. Likewise, embracing ESG is not just about meeting requirements but about future-proofing the investment in an increasingly sustainability-focussed world.
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[1] https://www.gov.uk/government/news/pm-tells-us-investors-britain-is-open-for-business-as-he-secured-major-10-billion-deal-to-drive-growth-and-create-jobs#:~:text=The%20UK%20is%20already%20home,to%20invest%20in%20and%20develop
[2] https://www.globenewswire.com/news-release/2025/03/14/3042791/0/en/United-Kingdom-Data-Centre-Report-2025-Active-Facilities-in-72-Cities-Blackpool-Plans-80MW-Expansion.html
[3] https://www.globenewswire.com/news-release/2025/02/13/3026202/28124/en/UK-Data-Center-Market-Investment-Report-2025-2030-Construction-of-AI-ready-Data-Centers-is-Increasing-Significantly-in-the-UK-Data-Center-Market-with-Ample-Growth-in-AI-Workloads.html
[4] https://bmmagazine.co.uk/news/labour-to-override-councils-for-data-centres-on-green-belt-to-boost-ai-industry/#:~:text=Labour%20is%20set%20to%20override,from%20bridges%20over%20the%20M25.
[5] https://www.gov.uk/government/news/data-centres-to-be-given-massive-boost-and-protections-from-cyber-criminals-and-it-blackouts
[6] https://www.gov.uk/guidance/national-planning-policy-framework/6-building-a-strong-competitive-economy paragraph 86(c)
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