The number of data center investment deals has increased significantly across the first nine months of the year, according to new research from Linklaters.
Analysis from the law firm shows the number of deals involving data centers has reached a compound annual growth of 32%.
2022 was a record year in terms of the overall value of global data center investments, the study found, reaching more than $59 billion. Similarly, the volume of deals also reached a high of 91.
However, 2023 statistics show that this has been matched both in terms of investment and deal volume.
This is despite challenging economic conditions and a general slowdown in investment deals, Linklaters said, which highlights the sharpened enterprise focus on data center capacity requirements.
AI is driving data center investment
Julian Cunningham-Day, partner and co-head of Linklaters' digital infrastructure offering, attributed much of the 2023 growth to the ongoing generative AI boom.
“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 centers," he said.
"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."
Research in September 2023 found that a surge in generative AI development is placing significant strain on colocation data center capacity, resulting in higher costs for customers.
Analysis of the North American data center market by real estate firm, JLL, revealed that colocation spaces are harder to find due to higher demand, which is in turn hiking prices by up to 30% for some customers.
The global digital infrastructure sector as a whole saw total investment of $149 billion in 2022, with $80 billion invested so far in 2023. Of this, $16 billion related specifically to data centers.
Europe has witnessed the most deals, Linklaters added, with the region upping its share in data center deal values by 36%.
North America, meanwhile, still leads in terms of overall deal transaction value, accounting for 72% of the total in 2022 and 34% in 2023.
Asia’s share of deal activity has also been steadily climbing since 2020, when it had 13% of data center deals. This has since jumped to 19%.
Linklaters said there are currently a variety of financing structures being used to accelerate investment in the sector.
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"In particular, we are seeing a move away from project or real-estate finance structures toward more flexible ‘infrastructure debt’ platforms," said energy and infrastructure partner Ross Schloeffel.
Nicole Kar, partner and global head of Linklaters’ antitrust and foreign investment practice, added that data centers are increasingly viewed as a core part of a country’s critical infrastructure.
"This leads foreign investment regulators to closely scrutinize the scope for such assets to provide hostile actors access to sensitive data if their security is breached," she said.
"Investors need, in this hottest of hot digital sectors, to pay close attention to important differences in how jurisdictions treat investment in data centers – or risk being caught out and subject to unexpected regulatory scrutiny."
In a separate report from data center provider Telehouse, a survey of UK IT decision makers has found that 61% are planning greater investment in data center infrastructure across 2023 and 2024.
More than half are now leaning towards colocation services, marking a sharp increase from just 33% last year.
Telehouse said the heightened focus on colocation services is largely due to the need for better security and stringent compliance obligations.
Cost, the study noted, is also a key factor, with enterprises viewing colocation options as far more cost-effective than on-prem infrastructure models.
