SEGRO chief executive David Sleath is eyeing a growing data centre portfolio at the FTSE 100 investor-developer, a business line that he wants the UK’s new government to realise can make the country’s economy “more productive and more resilient”.
Data centres now account for almost 10% of SEGRO’s asset base, with the company’s 31st site recently completed in Slough. This summer, Sleath and colleagues hosted a capital markets day at which they told investors and analysts they had identified a “1.2GW future opportunity” in this sector that could create as much as £200m of new rent.
CBRE said in June that Europe’s data centre market grew by nearly 20% year-on-year in terms of power over the start of 2024, thanks to development across the major markets of the so-called FLAP markets (Frankfurt, London, Amsterdam and Paris). London’s data centre inventory growth recorded an 11% increase to 1.06GW.
“We’ve got this incredible opportunity, [in Slough] and elsewhere,” Sleath said. “The demand has been supercharged because of AI and the only constraint, frankly, is the speed at which we can get sites ready with power and planning consent to be able to meet that demand. I cannot ever remember a time when it is literally ‘build it and they will come’.”
Larger than local
As SEGRO builds out its datacentre portfolio, Sleath and the team are focusing on three Ps – possession, planning and power. The first comes down to having the right land in the right place, and is paramount for the team, which aims for vacant possession of brownfield or industrial land.
“Industrial land in and around capital cities like Frankfurt, London, Amsterdam, Paris and Dublin, and then second-tier markets, which are Madrid, Milan, Warsaw, are where the data centre operators really like to concentrate their activity,” Sleath said.
“Some of the AI will happen in more remote locations because some of the machine learning doesn’t need to be close to the user base in the so-called availability zones – you can build it anywhere where the power is cheap. But a lot of the demand will continue to be in these core hubs.”
Next, planning – a headache for many developers, at least in the UK, there is now hope for change under a new government; not least since housing secretary Angela Rayner moved to recover appeals for two large data centre schemes rejected by local councils. Sleath has his wish-list ready.
“What we really want government to do is have a more efficient, slick planning process,” he said. “That means having a balanced approach to the importance of industrial, logistics and data centres, in terms of what it can do to unlock levelling up – or whatever they are now calling levelling up – promoting growth, driving the green economy, and getting more high-value jobs outside of the South East.”
Get it right, Sleath added, and the kind of real estate SEGRO builds is “something that can make the UK economy more productive and more resilient”. The balance to be struck is between “the local need and the national need”.
“Most logistics and things we are building are planned nationally, or at least regionally, by our customer base,” Sleath said. “You can’t leave it to the local council to decide what’s the right data centre capacity for [a particular town]. You have to think larger than local.
“We want government to think of logistics as a critically important piece of national infrastructure that has to be planned accordingly, the same for data centres.”
Power play
Finally, there is the issue of power. “We have total power [in the pipeline] of 1.2GW,” Sleath said. “The UK market is something like 4GW. If we could develop all of that space it would be a very big contribution to the European data centre market.
“Some of that power is available right now. Some of it is contracted and promised to be given to us over the next two to three years, and some of it is a bit longer term.”
The conundrum is often getting a connection, whether it is for drawing energy from the grid for data centres of exporting the energy into the grid from solar panels on SEGRO-owned properties.
“Everybody knows it takes too long to get a grid connection, whether it’s to draw it or export it,” Sleath added.
“In terms of the government’s agenda to drive the green economy, we can help them if they help all of us with better grid connections and speed of process.”
Photo © SEGRO
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