The world's economy is built on intangible, ephemeral data, but at its foundation is a very real digital infrastructure, and a host of companies focused on buying, building, developing and operating the future-proof bricks and mortar that make the extraordinary virtual a reality.
Exponential growth in computing demands kick-started the data centre revolution decades ago, but operators must now navigate some serious challenges to reap the considerable rewards of growth. On 24 November 2025, JLL's Sam Rose and Spencer Lamb, MD & Chief Commercial Officer of Kao Data HQ, sat down with Alan Evans, Partner in the UK and Laura Stechno, Senior Associate in Germany, to discuss the biggest hurdles.
Location, location, location
For all the comment pieces about data centres being hosted in space, the primary driver behind data centre location on the ground remains the customer base. Proximity can clearly equate to stronger connectivity and access to a tech-savvy talent pool, but the type of customer is also important.
The traditional colocation market continues to favour tier two markets across Europe (for example, Microsoft's Leeds facility), but as Spencer noted, while real estate agents and industry commentators work in very physical, spatial practicalities, data centre operator clients are used to operating in the ether. This is starting to mean a shift in focus to adaptability, with data centres serving multiple functionalities - from large language models to various AI applications. Across the UK, Germany, and France, traditional sectoral distinctions are becoming less relevant.
Some data centres must be in the UK for latency or regulatory reasons, but AI training centres can be located anywhere. This flexibility drives them towards the cheapest energy markets, such as Finland, Iceland, Norway, and Spain, where operational expenditure can be minimised. The cost disparities can be substantial.
Despite this evolving landscape, demand from operators and hyperscalers remains concentrated in the FLAP-D markets (Frankfurt, London, Amsterdam, Paris, and Dublin). Still, outside these locations, Milan stands out as a remarkable growth story. The North Italian financial capital currently hosts about 200 megawatts of installed data centre capacity, while its peak electricity demand stands at 1.5 GW. Beyond that, capacity is expected to surge tenfold between now and 2031.
Grid capacity
The entire data centre industry faces an unprecedented challenge: the national grid simply cannot satisfy projected future requirements. After decades of underfunding in grid capacity, predictions suggest that the situation will reach a crisis point within three to five years. Indeed, according to a recent McKinsey report (Beyond compute: Infrastructure that powers and cools AI data centers), by 2030, cloud and AI infrastructure will require seven to eight times the capacity demand in 2020.
The draw of traditional data centre requirements is well understood, but the market has yet to fully accommodate these additional AI needs, and particularly AI training facilities.
As Sam noted, the UK Government is making efforts, but this is a long-haul challenge of investment and engineering, and upgrades aren't expected until 2032. In the meantime, 'bridge-to-grid' solutions such as turbines, natural gas or diesel generators, and even Battery Energy Storage Systems (BESS) allow data centres to take some or all their power supply off-grid. This is already happening in the US and Dublin and will likely become part of the UK data centre landscape, but it is not without significant challenges. No one implements these solutions by choice added Spencer, only to become heavily reliant on backup generators if primary systems fail.
Grid connection
A particularly thorny issue has emerged around power connections. In the UK, applying for a power connection costs just £5,000, and given the hype surrounding the sector, this has led to a flood of speculative connection licences, congesting the development queue. Legitimate, large-scale providers have found themselves unable to secure power, and the situation has reached absurd proportions.
Earlier this month, Ofgem admitted that 'the volume of [connection applications] is misaligned with the most ambitious demand forecasts' and vowed to work 'at pace to develop and implement [a] targeted package of regulatory and policy measures' to resolve the issue and weed out speculative schemes. There is some light at the end of the pipeline, but resolution isn't expected until Q3 2026.
Public perception
Our panellists did not think that securing planning permission had been a major barrier for data centre providers in the UK. The public tends not to object to permission being granted at present, and, while tensions may arise when facilities are proposed near residential areas (as seen in Slough), these can be mitigated by simply relocating to less urban locations.
Green clouds
The sector's reputation is easily tarnished by ESG considerations, however, and dispelling some myths around energy use could help public perception. The idea that data centres 'suck all the water dry', a narrative imported from the US, doesn't reflect the reality of many facilities, said Spencer. Those with closed-loop systems recycle the same water, again and again, over a 20-year lifecycle, he explained, effectively using the same amount as the annual consumption of a family of four.
In Germany, planning conditions lean into the green issue, commonly requiring data centres to heat local buildings or harvest rainwater, but the UK has no equivalent requirements. There is also the question of renewable energy, but Spencer admitted that reliable power remains the paramount concern; not every data centre can settle in proximity to hydroelectric dams and other renewable sources.
In the meantime, another key concept in sustainable real estate, retrofitting, creates some difficult dilemmas due to technology investment cycles. Some data centres built only a decade ago are filled with mechanical and electrical equipment with a shelf life of just seven to ten years. But while some cryptocurrency facilities in the Nordics are already being repurposed for AI applications, it's not always the logical move. Installing new cooling systems demands both significant CapEx and engineering ingenuity, for example, meaning most prefer to develop ground-up new builds rather than retrofit existing centres.
Conclusion
The data centre industry is at a crossroads. The explosive growth in AI demand, against decades of grid underinvestment and ESG demands, has created a perfect storm of challenges. Success will require coordinated action across government policy, infrastructure investment, and strategic planning, and the next 12 to 18 months will be critical. If today's conversation were to be repeated, then it is hoped that the answers would be very different indeed.
As for data centres in space? That may be some time…
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