As Europe pushes forward into the age of artificial intelligence (AI), the region’s data center capacity is facing significant challenges. Despite plans for a 22% expansion in data center capacity this year, experts warn that demand will continue to outstrip supply, raising concerns that Europe could fall behind in the global AI race. The limited capacity, combined with electric grid congestion and the scarcity of suitable sites, threatens to leave Europe lagging behind China and the U.S. in the rapidly evolving tech landscape.

Europe’s Data Center Struggle to Meet AI Demand

European data centers are set to expand their capacity by 22% in 2025, a move aimed at addressing the increasing demand for data storage and processing power. However, industry analysts believe that even this expansion will not be enough to meet the soaring demand, particularly driven by the needs of AI applications. At the Kickstart Europe conference, Kevin Restivo, director of data center research at CBRE, highlighted the stark reality that providers are unable to build supply fast enough to keep up with demand.

The challenges are particularly acute in traditional European data center hubs such as Frankfurt, London, Amsterdam, Paris, and Dublin. In these cities, electric grid constraints are limiting the growth of data center capacity. As a result, the region is seeing a rapid rise in secondary markets, with cities like Milan, Warsaw, and Berlin expanding the fastest. However, even in these emerging markets, the pace of growth may not be sufficient to meet the demand from businesses seeking AI-linked data processing capabilities.

The Energy-Efficiency Dilemma

While some developments, like China’s DeepSeek, have raised hopes for more energy-efficient AI models, this is unlikely to alleviate Europe’s pressing issues. Europe’s energy infrastructure is already under strain, with electric grid congestion being one of the key hurdles for the data center industry. Without significant upgrades to the grid and the identification of new suitable sites, Europe will continue to struggle with insufficient capacity to support the growing demands of AI and other high-performance computing needs.

As the demand for AI-linked space continues to rise, large software companies, including Google and Amazon, are pressing ahead with plans for “hyperscale” data centers, which provide large-scale cloud computing resources. These hyperscalers are expected to account for more than a third of the total capacity coming online in 2025. However, the infrastructure needed to support such large-scale operations is limited, and Europe’s energy grid is already at capacity in many areas.

The Rising Cost of Expansion

Despite the significant investments being made, the cost of building data centers in Europe continues to rise. According to CBRE, the average cost of constructing “colocation” space—data center space rented by large companies—now stands at €12 million per megawatt. This means that the European data center industry is expected to expand by more than €100 billion in 2025. However, this figure pales in comparison to the scale of investments being made in the U.S., where initiatives like Oracle, Microsoft, and OpenAI’s “Stargate” project are driving a $500 billion investment over the next four years.

The increasing costs of data center construction and the challenge of securing enough energy capacity are making it harder for Europe to keep pace with the U.S. and China. These countries are already far ahead in terms of their investment in AI infrastructure, leaving Europe in a vulnerable position. Stijn Grove, managing director of the Dutch Data Center Association, expressed concern that Europe risks falling into a technological dependency, watching as AI leadership becomes more firmly consolidated between the U.S. and China.

Secondary Markets and the Future of European Data Centers

In response to the bottlenecks in traditional data center hubs, Europe is witnessing the rapid growth of secondary markets. Cities like Milan, Warsaw, and Berlin are leading the charge in expanding their data center capacities. These markets are seen as more accessible and cost-effective alternatives to the well-established centers in Western Europe.

However, even as these secondary markets gain traction, it’s clear that they cannot fully compensate for the lack of capacity in the region’s main hubs. The demand for AI-linked data centers, along with the growth of industries such as cloud computing and e-commerce, is expected to keep outpacing the supply of available space. This leaves the region in a difficult position, struggling to catch up with global competitors while trying to address its internal infrastructure challenges.

Europe’s Technological Dependency on the U.S. and China

The widening gap in data center capacity between Europe, the U.S., and China poses serious risks for the continent’s future in the tech and AI industries. With companies like Google, Amazon, and Microsoft leading the charge in AI infrastructure investments in the U.S., and China’s advancements in energy-efficient AI models, Europe may be left behind unless it takes more aggressive steps to address its data center shortfall.

Experts warn that Europe risks becoming increasingly dependent on technology from the U.S. and China, while its own AI leadership stagnates. If Europe fails to address its data center capacity issues, it could find itself in a subordinate position in the global AI race, with fewer resources available for homegrown innovation and development.

Conclusion: A Call for Action

The challenges facing Europe’s data center industry are substantial, but not insurmountable. The continent must act quickly to address issues like electric grid congestion and the shortage of suitable building sites. Governments and private-sector players need to collaborate to create a favorable environment for data center construction, which will be crucial for supporting AI growth.

In the coming years, Europe must increase its investment in data center infrastructure, focus on energy efficiency, and streamline regulations to foster growth in secondary markets. If these challenges are met head-on, Europe can reclaim its position as a key player in the global AI ecosystem.

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