Europe’s Data Center Market Shifts: Neocloud Providers Fill the Gap as Hyperscaler Demand Cools
As Europe faces a looming data centre capacity crunch, a new dynamic is emerging: neocloud providers are rapidly becoming key tenants, absorbing demand previously driven by hyperscale cloud firms.This shift, detailed in recent research from CBRE, signals a significant evolution in the European colocation landscape.
For years, hyperscalers – the tech giants like Amazon, Google, and Microsoft – have dominated data centre capacity acquisition. However, their appetite for colocation space has demonstrably waned. Simultaneously, a surge in demand for infrastructure to support Artificial Intelligence (AI) workloads is creating a critical need for power and space. This is where neocloud providers – specialized AI infrastructure companies like Nscale and Coreweave – are stepping in,effectively plugging the demand gaps and reshaping the market.
The Rise of the Neocloud and a Tripling of Capacity Demand
CBRE’s Q3 analysis of the European data centre market reveals a dramatic increase in capacity uptake by these neocloud entities. Over the past year,the volume of data centre space sold to neocloud providers has tripled,reaching 414MW in the first nine months of the year,compared to 133MW during the same period in 2024. This represents a ample portion of overall demand and highlights the growing importance of this emerging segment.
“This trend demonstrates a clear recalibration of the market,” explains Kevin Restivo, Director of European Data Centre Research at CBRE. “While hyperscaler growth has moderated, the need for high-density, power-intensive infrastructure for AI is exploding. Neocloud providers are uniquely positioned to capitalize on this demand.”
Nordic Nations Lead the Way: Power and Availability Drive location Choices
While new supply is coming online across Europe, the Nordics – particularly Norway and iceland – are proving to be the most attractive locations for neocloud providers. During Q3 2025, London saw the largest addition of new capacity (114MW, with 68MW delivered), the Nordics are attracting the bulk of neocloud investment.
This preference is driven by a critical factor: power. AI infrastructure is notoriously energy-hungry,and the Nordics offer a compelling combination of abundant,low-cost renewable energy sources and available capacity – resources increasingly scarce in other European markets.
“Power is frequently enough the single largest expense for AI infrastructure providers,” Restivo emphasizes. “The Nordics provide a significant cost advantage, making them a natural choice for these demanding workloads.”
Addressing the Risks: Colocation Providers Adapt to a New Client Profile
The rapid ascent of some neocloud providers has understandably raised questions within the IT industry. Companies like Nscale have achieved significant funding and prominence in a short timeframe, leading to scrutiny regarding their long-term viability.
Colocation providers are acknowledging these risks and proactively implementing mitigation strategies. While generally welcoming neocloud firms as tenants, they are adjusting their commercial terms to reflect the increased risk profile.
CBRE’s report details these measures:
* Higher Rents: increased rental rates are being applied to account for the inherent risk associated with newer, less established companies.
* Rental Deposits: Larger security deposits are being required to provide financial protection.
* Parent Company Guarantees: Seeking guarantees from parent companies to ensure financial stability.
Andrew Jay, Head of Data Centre Solutions for Europe at CBRE, notes that neocloud providers are also proving valuable by absorbing space originally earmarked for hyperscalers. “We’ve seen instances where hyperscaler deals have stalled, leaving operators with vacant capacity. Neocloud providers are stepping in to fill that void,demonstrating a growing comfort level with their ambitions and the associated covenants.” A February 2025 example cited in the report involved a hyperscaler halting capacity negotiations, creating an possibility for a neocloud provider to secure space.
Implications for the future: A More Diversified and Resilient Market
The shift towards neocloud providers represents a significant diversification of the European data centre market. While hyperscalers will remain important players, the rise of specialized AI infrastructure providers adds a new layer of resilience and innovation.
This evolving landscape demands that colocation providers adapt their strategies, focusing on:
* Power Availability and Sustainability: Investing in renewable energy sources and efficient power infrastructure.
* High-Density Capabilities: Designing facilities capable of supporting the power densities required by AI workloads.
* **Risk Management
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