Data centre momentum continues as $16bn is invested in first nine months of 2023

• US$16bn has been invested in data centre projects in the first nine months of 2023
• The number of data centre deals has seen compounded annual growth of 32% since 2017
• Europe has seen the most deals involving data centres since 2022, with North America leading in terms of transaction value
• Data centres maintain their resilience and look set to match 2022’s record levels of deal volume, despite challenging economic conditions

The global digital infrastructure sector saw total investment of US$149bn in 2022, with $80bn invested so far in 2023*, according to analysis by global law firm Linklaters**. Of this $80bn, US$16bn has been invested specifically in deals involving data centres, as investor appetite grows towards the digital world’s warehouses for data storage and processing.

While 2022 was a record year in both value of global investment at US$59bn, and global deal volume at 91 date centre-related deals, data centres have maintained their resilience and look set to be in line with the levels of investment and deal volume seen in 2022. This is despite the challenging economic conditions and a general deal slowdown, as the continued rise of the internet and technology evolution, including 5G and Generative AI, positions data centres as critical infrastructure.

David Martin, Partner and Co-Head of Linklaters Digital Infrastructure offering, commented:

“Our research has underlined the popularity and critical nature of data centres and this trend is building momentum. One recurring theme throughout the data is the role of financial sponsors who have always been attracted to data centres due the increasing criticality of digital infrastructure and strong financial returns. Looking to the remainder of 2023 and into 2024, we are at an interesting junction as many of the data centres are coming to the end of their five-to-seven-year cycle. We should expect to see increasingly high volumes of deal activity within this space as strong macro trends, including cloud computing and AI continue and sponsors look to spin out assets or sell off shares to stabilise and attract new investors.”

The number of deals involving data centres has increased steadily over the years, recording a compounded annual growth of 32% from 2017 to 2022. The momentum has continued in 2023 as the deal volume looks set to match 2022’s record levels, despite challenging economic conditions.

Europe has seen the greatest number of deals in 2022 and 2023 and has increased its share in data centre transaction value from 6% in 2022 to 36% in 2023. Across the pond, North America continues to be a leading jurisdiction and has led in terms of transaction value throughout, contributing to 72% of total transaction value in 2022 and 34% in 2023.

Since 2020, Asia’s share of deal activity has also been steadily climbing. In 2020, it had 13% of data centre deals based across the continent, rising to 17% in 2022 and 19% in 2023.

Julian Cunningham-Day, Partner and Co-Head of Linklaters Digital Infrastructure offering, said:

“We live in a digital world. The increasing adoption of AI and cloud services is making data storage ever more critical while the proliferation of IoT devices and streaming services is driving demand for edge data centres. Many national governments have backed the development of the sector and encouraged record levels of investment, which is one of the key drivers behind the continued resilience and levels of investment in Europe, despite the challenging market conditions which have impacted M&A in some sectors. We are also starting to see a sharp upward trajectory in larger markets as more data centres are built, particularly within North America and Asia.”

Ross Schloeffel, Energy & Infrastructure Partner, commented:

“Data centres need significant capital investment. The sector has seen remarkable resilience in the face of a challenging global economy and there are a variety of financing structures being used to accelerate investment into this growing sector. In particular we are seeing a move away from project or real-estate finance structures toward more flexible ‘infrastructure debt’ platforms. Data centres have seen the highest amount of investment of all digital infrastructure asset classes this year to date."

Neil Hoolihan, Antitrust & Foreign Investment Partner, added:

“With data and data processing increasingly seen as the new "oil" of the 4th industrial revolution, data centres are viewed as a core part of a country’s critical infrastructure. This leads foreign investment regulators to closely scrutinise the scope for such assets to provide hostile actors access to sensitive data if their security is breached. In the wrong hands, control of a data centre or access to the data itself could be used to cause disruption or otherwise compromise national security interests.

“Investors need, in this hottest of hot digital sectors, to pay close attention to important differences in how jurisdictions treat investment in data centres – or risk being caught out and subject to unexpected regulatory scrutiny.”

Linklaters is at the cutting-edge of the digital infrastructure sector and the remit of the team has widened as the market has grown to incorporate a growing number of digital infrastructure assets, including data centres, fibre, towers and satellites.

These transactions often involve multiple complexities of bespoke corporate and financing structures, an increasingly regulated investment sector, and complex development and offtake contracts driving value, playing into the combined strengths of our market leading corporate, finance, telecoms and regulatory teams.

The firm has been involved in some of the digital infrastructure sector’s biggest deals for many years. Recent deals involving data centres include advising: DigitalBridge and Vantage Data Centers on AustralianSuper’s €1.5bn investment in Vantage's EMEA platform; Proparco and The Emerging Africa Infrastructure Fund on the sustainability-linked financing granted to the Raxio Data Centres group; and Chindata Group Holdings Limited on its debut high yield bond issuance.