The LMA recently held our inaugural European Loan Markets conference – over 400 market practitioners gathered in Paris pushing the boundaries by covering the recent emerging trends in loan markets.
One such area is the financing of data centres and with a great panel of market leaders, 45 mins was not enough to do the subject justice.
DCs are the cornerstone of the current and future digital revolution and are the foundation on which pace of change will be built (well maybe the chips too!).
With the emergence of new financing there does lie the usual opportunities and challenges. The obvious – what is a DC, how should it be looked at in the world of financing, how does this fit into ESG methodology, and of course how can financing capacity accommodate this growth.
As one panellist aptly put it, “Data centres are not just the backbone of the digital economy—they are the architects of a sustainable future. But we all must work to ensure that the foundations they’re built on are just as robust as the services they provide.”
The opportunities are significant for those parties taking the lead and embracing the new markets and committing finance – the volumes are already significant and will continue to increase at pace. The Paris conference polling showed an expectation of trebling of size. With current volumes estimated at E60bn, we are not far off volumes akin to a mature leveraged loan market in Europe with the likelihood of surpassing quickly.
The challenge will come then to capacity and the ability to absorb such financing needs. Second order challenges will then emerge such as concentration of risk and where this manifests itself with such dependencies. Markets always work well with diversified sources of capital and with sizes of these deals that just may not be possible.
As a trade association, the LMA will also have a key role to play reflecting the complex, hybrid nature of these facilities—part infrastructure, part real estate, part technology. Watch this space as we build on the historic DNA of the LMA – standardised documentation (templates and frameworks), tying into our sustainable financing practises (and there are clear KPIs in this are around power, water, and carbon), working with members on best practises supporting diversification and risk sharing, translating to developing markets and of course education and market awareness.
As a secondary correlation the work of the LMA is now increasingly looking at digital loan platforms, smart contracts and of course large learning models and generative AI, all dependent on these DCs.
Let’s go back to the Paris conference!
How are these best financed – project finance, infrastructure finance, or real estate finance? Well of course the consensus is nuanced. Data centres don’t fit neatly into any one box—they exhibit characteristics of all three
- Project Finance: For standalone developments, particularly hyperscale or greenfield data centres, project finance structures are increasingly common; long-term contracts with lessees and predictable cash flows, suitable for lenders who prioritise cash-flow-backed repayment. Risks such as construction and operational challenges can be mitigated through robust contractual frameworks.
- Infrastructure Finance: Given the strategic importance of data centres, particularly those supporting government or critical infrastructure, maybe infrastructure financing akin to utilities, and the financing structure can reflect this by involving institutional investors seeking long-term, stable returns.
- Real Estate Finance: And finally at the other end of the spectrum, data centres can resemble commercial real estate assets. Co-location facilities, where multiple tenants lease space, often attract real estate investors who see these assets as a unique mix of property and operating business.
We can take the view of our panellist, Timo Buijs, Senior Director at ABN AMRO Bank N.V. on this where he was asked will data centres evolve into more of a real estate or project financing case in the future? “We will likely see a range of formats. The exact structure will depend on several factors: 1. The lease agreement (e.g., NNN or including SLA), 2. The shareholder’s background (e.g., real estate or infrastructure, 3. The structuring or coordinating bank or advisor, 4. Liquidity in the specific financing pools, 4. Terms and pricing within these pools”.
Ultimately, the future of data centre financing will be shaped by a combination of factors, resulting in a dynamic and diverse landscape. It would be unusual not to have a question on crypto and of course some in the audience wanted to know about mining – estimates suggest that crypto mining accounts for less than 5% of global data centre capacity. However, the concentration of this activity in certain facilities can pose risks – lease breaks, reputation and ESG. According to Timo, “we’re seeing more data centre operators move away from exclusively serving crypto clients, as it restricts financing opportunities and limits exit options, including potential multiples”.
Another critical issue raised was tenant concentration. The dominance of major cloud providers, such as Amazon Web Services, Google Cloud, and Microsoft Azure, has made them cornerstone tenants for many data centres. While this offers long-term stability through strong leases and high credit ratings, it also presents risks due to over-reliance on a small number of tenants in rapidly evolving markets.
But what happens in the event of a black swan, such as the bankruptcy of one of these key tenants? While the likelihood is low, with credit ratings ranging from AAA to AA-, the potential impact would be substantial, as Timo highlighted. Should such an event occur, the digital landscape would likely undergo significant transformation, reshaping the industry in ways that are difficult to fully predict. The panel highlighted the importance of diversifying tenant bases to mitigate over-reliance on volatile sectors. Data centre operators with a balanced mix of tenants—from cloud providers to media companies—are seen as better positioned to weather economic cycles.
Another important topic discussed was global electricity usage. Today, data centres account for around 1% of global electricity consumption.[i] This could rise to 10% by 2030 or as the conference poll results suggest can be more than double by 2026 compared to today.
With the continued high global power demand, sourcing it is key for data centre’ s growing market. There could be a several potential solutions to the lower the reliance on the electricity according to a panellist. First, hyperscale data centre companies are increasingly building their own substations and exploring new power production sources, such as Small Modular Reactors. Nearly 50% of total hyperscale data centres are either in development or under construction. They are also the largest buyers of renewable energy. Second, improving the efficiency of data centres and energy infrastructure is crucial, though it may not be enough on its own to meet future demand. Finally, promoting awareness about the significant power consumption of data and managing data capacity more efficiently, including cleaning and reusing capacity, will be key. However, changing consumer behaviour around data usage will not be easy.
Despite a decline in vacancy rates across most global markets due to strong demand—illustrated by CBRE’s report showing data centre vacancy rates in the FLAPD markets (Frankfurt, London, Amsterdam, Paris, and Dublin) dropping below 10% for the first time[ii]—this region remains the largest and most significant market. The LMA has extensive geographic reach within these regions (FLAP), with members spanning across EMEA.
In the Middle East and Africa, rapid digital transformation and supportive government initiatives are spurring growth. Regions like the Gulf Cooperation Council (GCC) and South Africa are witnessing significant investment flows as companies seek to bridge the digital divide and improve data sovereignty.
What’s next? Data centres are poised to remain at the intersection of technology and finance. The evolving market dynamics demand creative financing solutions, robust risk management, and a forward-looking approach to sustainability and tenant diversification.
For the LMA next up will be a data centre podcast and we will turn our attention to a further blog on DC and sustainable finance.
[i] What the data centre and AI boom could mean for the energy sector – Analysis – IEA
[ii] CBRE Reports Historic Low Vacancy Rates in Europe’s FLAPD Data Centre Markets | Data Centre Magazine
