New urban master plan by Frankfurt for development of data centres

As Web 3.0 and the metaverse continue to unfold, the demand for data centres continue to expand exponentially, and the asset category has now become an established new class for many investors seeking yield and diversification.

However, most of the cities and regions in Europe where data centres are clustered are growing very concerned about the enormous energy needs of these big resource-hungry buildings, and are imposing stricter regulation on the building of new centres to stay within their climate protection targets.

REFIRE tuned in to a recent online debate hosted by lawyers DLA Piper about the implications of these problems for cities' building planning laws. Frankfurt, in particular, is highly affected by these planning issues, as it is one of the largest - and still fastest-growing - centres in Europe, housing more than 100 data centres already. Its pipeline of new projected centres will need a further 7 hectares of space annually to accomodate the proposed €400-500m of investment each year for the next several years, as we learned.

Frankfurt's planning department, headed by Martin Hunscher, has now developed a new concept to manage the construction of all these data centres. This envisages regulating so that future projects blend in better with the cityscape, optimising the use of waste heat and reducing noise emissions.

The city wants to avoid having to prohibit the construction of data centres, as has occurred for a while in Singapore and Amsterdam, by tighter control of where the data centres can be located, based on the preparation of more detailed urban land-use plans, and subject to approval by Frankfurt's parliament.

Hunscher, who took part in the online debate, said data centre project developers would benefit from the city's new master plan to control the future clustering of data centres in the Frankfurt and Rhine-Main region surrounding the city. "Developers will gain more planning security, and the energy providers will also benefit by knowing where to concentrate their priorities", he said.

For example, data centres with their low vehicle movements, can be located close to motorways without having to have the best connection to them. Other businesses, particularly small and medium-sized enterprises and with great parking and access needs, have been discriminated against in the past by wealthy data centre developers siphoning off many of the best sites, in some cases paying up to eight times the standard land value.

Dr. Jan Linsin, the head of research for Germany at CBRE, presented the key findings of CBRE's latest market analysis of the sector, which he said had re-aligned a lot in the last few years, largely due to the arrival of the really big hyperscalers to Frankfurt.

CBRE is forecasting an additional 75 MW of potential power consumption in completed data centres and those under development in Frankfurt and the immediate vicinity for 2022. Although this is significantly less than the 145 MW from 2021, it is roughly on a par with the previous record years of 2017 and 2019, according to CBRE's figures. For 2023, up to 200 MW of newly completed and projected capacity is predicted.

The big hyperscalers - the huge internet companies that lease complete data centres or build and operate them themselves - now account for a big share of the wholesale market. The wholesale market - which contracts out complete facilities to individual users, who then often organise the technical operation themselves - outstripped the retail business for the first time in Frankfurt in 2021. 'Retail' in this context means he awarding of smaller service packages, often combined with comparatively extensive services.

Linsin said he expects demand to remain high. With the 'vacancy rate' in Frankfurt's data centres at a moderately low 11% rate in 2021 - 'vacancy' in this context meaning the share of existing energy capacity not contractually leased out to customers - that rate is expected to fall to 7.5% in 2022.

Linsin said competition for space was becoming a real problem, with 59 hectares of land in Frankfurt and its immediate neighbourhood occupied by data centres in 2020, with a further 34 hectares in the pipeline. But data centres weren't having it all their own way, despite their willingness to pay high prices. "Sometimes even these lose out to logistics and especially last-mile logistics providers. So it's inevitable there'll have to be even more intense development of brownfield sites, both for data centres as well as for logistics and small-scale and industrial businesses", he said.

Michael Dada, Director of Data Centre Solutions at CBRE, addressed the additional problem of the shortage of power, as well as of land. There are areas in the Frankfurt area that are suitable for data centres, but there is a lack of available electricity. Despite this, developers have been buying some of these sites in the hope of diverting energy from nearby sites, or even in anticipation of electricity infrastructure arriving at some point in the future. Developer Interxion even equipped its FRA16 data centre, completed earlier this year, with its own transformer station, in the absence of energy from the grid.

Lars Reubekeul, partner and co-head of real estate at DLA Piper, was also optimistic about the potential for assets other than the large-scale unused or underused commercial properties. "Small-scale so-called 'Edge' data centres are gaining in importance and could also occupy vacancies in office or hotel buildings, for example. They can also be accommodated in the less attractive parts of otherwise used properties".