Data Centres: The Next Great Asset Class for Councils?
- truthaboutlocalgov
- 5 days ago
- 12 min read
For decades, local government asset strategies have moved in step with the wider economic tides. Retail parks once offered the kind of stable, predictable yields that underpinned long‑term financial planning. Out‑of‑town shopping centres became the dependable backbone of many council portfolios, providing steady footfall and business rates. Then came the pandemic, and with it a dramatic shift: industrial and logistics assets surged in value as the nation pivoted to online retail, home delivery, and distributed supply chains. Councils that moved early into sheds and distribution hubs often found themselves rewarded with resilient income streams and strong tenant demand.
Now, another contender is emerging, one that is expanding at a pace unmatched by any previous asset class and sits at the very heart of the UK’s economic future: data centres.
Why Data Centres, and Why Now?
The UK is undergoing an extraordinary boom in digital infrastructure. Oxford Economics has traced the scale of this transformation, noting that in 2000 the UK hosted just 52 data centres. By 2024, that figure had grown by more than 400%, reaching 266 facilities and positioning the UK as one of the leading data‑centre markets in western Europe. This is not a marginal trend; it is a structural shift in the nation’s economic foundations.
And the momentum is accelerating. Analysts at Oxford Economics have identified over $59 billion in announced UK data‑centre construction since 2023, with 52 new sites expected over the next nine years, 50 of them within the next five. That level of capital commitment places data centres alongside transport, energy, and housing as one of the most significant infrastructure investment categories of the decade.
The engine behind this surge is the rapid expansion of artificial intelligence. AI models require vast computational power, and that power must be housed somewhere. The government’s AI Opportunities Action Plan, drawing on data from Statista and other industry sources, explicitly frames data centres as “essential in supporting the nation’s broader artificial intelligence ambitions”. The plan goes further, calling for the creation of AI Growth Zones, areas where planning, infrastructure, and investment can be aligned to accelerate digital‑infrastructure development.
In other words, data centres are no longer simply commercial assets. They are becoming strategic national infrastructure.
Clarissa Hahn of Oxford Economics captures the scale of the shift succinctly: “The numbers tell a compelling story.”
And indeed they do, a story of rising demand, unprecedented investment, and a rapidly evolving landscape in which councils have a genuine opportunity to shape, influence, and benefit from the next major asset cycle.
The Energy Reality: A New Kind of Infrastructure
Data centres are not passive, low‑impact assets. They are vast, energy‑hungry engines of the digital economy, drawing 10 to 50 times more electricity per square metre than a typical commercial building. This scale of consumption fundamentally changes how councils must think about them. They are not simply sheds with servers; they are infrastructure in their own right.
Oxford Economics has highlighted the sheer magnitude of this shift. In 2023, UK data centres consumed 5.0 TWh of electricity, roughly the same as 1.8 million British households. And this is only the beginning. By 2030, demand is projected to rise fivefold to 26.2 TWh, which would account for 8.8% of the UK’s total electricity consumption. That places data centres in the same league as major industrial sectors and makes them a central consideration in national and local energy planning.
This is not just another asset class. It is a new form of critical infrastructure, one that intersects with energy policy, climate commitments, grid capacity, and local economic development. Councils that understand this early will be far better positioned to shape how, where, and on what terms data‑centre growth happens in their area.
The Local Government Gap
Yet despite the scale of the opportunity, and the risks of inaction, most councils are not preparing for this shift. FarrPoint’s 2025 Digital Connectivity Survey paints a stark picture of local government readiness. Only 4% of councils are developing a dedicated data‑centre strategy. A mere 15% are actively engaging with data‑centre developers. And only 24% believe that data centres offer significant economic benefits. These figures, reported by DIGIT, suggest that while the private sector is accelerating investment at unprecedented speed, local authorities are largely watching from the sidelines.
This disconnect is worrying. Councils control planning, land allocation, local energy strategy, and community engagement, all of which are essential to the success or failure of data‑centre development. Without proactive involvement, councils risk being reactive recipients of proposals rather than strategic partners shaping long‑term outcomes.
Dr Andrew Muir, CEO of FarrPoint, captures the challenge clearly. As he explains,
local involvement will be needed as the continued expansion of 5G takes place and the increased developments around data centres raise pros and cons for local areas, all of which need to be considered.
His point is simple: data centres will arrive, but whether they deliver local value depends on whether councils are ready to engage. In other words, the boom is happening, but not necessarily with local government. And that gap represents both a risk and an opportunity. Councils that step forward now can shape the terms of development, secure long‑term revenue, and align digital infrastructure with local priorities. Those that wait may find decisions made for them.
Why Councils Should Pay Attention
1. Economic Development
Data centres are not just buildings filled with servers; they are catalysts for high‑value economic activity. Each facility supports a wide ecosystem of skilled jobs, from electrical engineers and network specialists to security teams, maintenance contractors, and construction partners. They also stimulate wider supply‑chain activity, including fibre installation, renewable‑energy integration, and specialist cooling technologies.
Crucially, data centres act as anchors for digital clusters. Where they appear, AI start‑ups, cloud‑computing firms, and advanced‑manufacturing businesses tend to follow. This clustering effect is already visible in regions such as West London and the Thames Valley, where digital infrastructure has helped shape some of the UK’s most productive local economies. For councils seeking to attract future‑facing industries, data centres offer a powerful foundation.
2. Revenue Potential
From an asset‑management perspective, data centres offer something increasingly rare: long‑term, predictable income. Operators typically sign long leases, often with institutional‑grade covenant strength, because the cost and complexity of relocating a data centre is enormous. Once a facility is built and operational, tenants tend to stay for decades. For councils facing tightening budgets, this stability is attractive. A well‑structured data‑centre investment can provide a reliable revenue stream that supports frontline services, reduces exposure to volatile asset classes, and strengthens the overall resilience of the portfolio. In a world where retail yields fluctuate and office demand remains uncertain, data centres stand out as a durable, future‑proof option.
3. Strategic Influence
Local authorities hold several of the most important levers in the data‑centre development process. Planning policy, land allocation, and local energy strategy all sit squarely within council control. This gives councils a unique opportunity to shape how data‑centre growth unfolds, not simply reacting to private‑sector proposals, but actively guiding development to align with local priorities.
Councils can identify suitable sites, set clear expectations around sustainability, negotiate community benefits, and ensure that infrastructure upgrades support wider economic goals. They can also use their convening power to bring together developers, utilities, universities, and local businesses to create coherent digital‑infrastructure plans. In a sector where certainty and speed are prized, councils that provide clarity will attract investment.
4. Alignment with National Priorities
The UK Government has made digital infrastructure and AI readiness central to its economic strategy. The AI Opportunities Action Plan frames data centres as essential to national competitiveness, while wider policy emphasises energy resilience, grid modernisation, and the creation of AI Growth Zones. This national direction of travel creates a favourable environment for councils that want to position themselves as digital‑ready places.
By engaging early, councils can align local plans with national funding streams, regulatory reforms, and infrastructure programmes. They can also demonstrate to government, and to investors, that their area is prepared to support the next wave of digital‑economy growth. In an era where regions compete for high‑value investment, being aligned with national priorities is a strategic advantage.
Would a Data Centre Work in Your Area? Key Questions for Councils
Deciding whether a data centre is viable in your locality is not simply a matter of identifying spare land or responding to developer interest. It requires a structured assessment of infrastructure, demand, planning readiness, and portfolio fit. Councils that take a proactive, evidence‑led approach will be far better placed to attract high‑quality investment and avoid costly missteps.
1. Do you have the right land?
Data centres are physically substantial and operationally sensitive. They require sites that are not only large enough to accommodate the building footprint but also secure, resilient, and well‑connected. Councils should consider whether they can offer:
Large, secure plots with clear boundaries and space for future expansion.
Proximity to major fibre routes, ensuring low‑latency connectivity to national and international networks.
Access to substations or grid‑reinforcement opportunities, as power delivery is often the defining constraint.
Low flood‑risk locations, given the critical nature of the equipment and the insurance implications.
Good transport access, enabling construction traffic, maintenance teams, and equipment deliveries to move efficiently.
Land that meets these criteria is rare, which is precisely why councils that identify and safeguard suitable sites early can gain a competitive advantage.
2. Is there sufficient power?
Power is the single biggest barrier to data‑centre development in the UK. Even the most attractive site will fail to progress if the local grid cannot support the required load.
Councils should work closely with their Distribution Network Operator (DNO) to understand:
Current grid capacity and whether it can support multi‑megawatt demand.
Planned upgrades or reinforcement works that could unlock future capacity.
Opportunities for private‑wire arrangements, linking the site directly to local renewable generation or battery storage.
Potential partnerships with energy providers to co‑design long‑term solutions.
This is where councils can play a strategic role. By convening utilities, developers, and regional energy bodies, they can help shape a coherent local energy strategy that supports both data‑centre growth and wider decarbonisation goals.
3. What is the local demand profile?
Not every area will attract the same level of interest. Developers and operators look for locations where demand for compute power is likely to grow.
Areas with the following characteristics tend to be especially attractive:
Universities and research institutions, which generate high‑performance computing needs.
Tech clusters, including AI start‑ups, digital‑media firms, and cloud‑native businesses.
Advanced manufacturing, where automation, robotics, and digital twins require significant data processing.
Strong connectivity corridors, such as regions near major fibre backbones or international gateways.
Understanding your local economic profile, and how it may evolve, helps councils position themselves as credible partners in the digital‑infrastructure landscape.
4. Can planning be streamlined?
Data‑centre developers value certainty above all else. Long delays, unclear expectations, or inconsistent decision‑making can push investment elsewhere.
Councils can create a more attractive environment by:
Pre‑identifying suitable sites and signalling this clearly in local plans.
Developing Supplementary Planning Documents (SPDs) that set out expectations on design, sustainability, noise, water use, and community benefits.
Engaging early with developers and utilities, ensuring that planning, energy, and infrastructure conversations happen in parallel rather than sequentially.
A council that can offer clarity, speed, and a coherent planning framework will stand out in a competitive market.
5. Does it fit your portfolio strategy?
Data centres can be powerful additions to a council’s investment portfolio, but they are not for everyone. They are highly specialised assets with unique operational requirements, long development timelines, and significant energy dependencies.
Councils should consider:
Risk diversification, data centres can balance exposure to retail, office, or industrial assets.
Long‑term income stability, leases are typically lengthy and tenants are sticky.
Operational complexity, these assets require specialist management and robust contractual arrangements.
Alignment with local priorities, such as digital inclusion, skills development, or green‑energy ambitions.
A data centre should not be pursued simply because it is fashionable. It should be pursued because it strengthens the council’s financial position, supports local economic growth, and aligns with a clear strategic vision.
Financing Options for Councils
Financing a data centre is not a one‑size‑fits‑all exercise. Councils have a range of models available to them, each with its own balance of risk, reward, control, and complexity. The right approach depends on the council’s appetite for long‑term investment, its access to capital, and the strategic role it wants to play in shaping local digital infrastructure.
1. Direct Investment
Some councils may choose to take a bold, long‑term position by developing and owning the data‑centre asset outright, then leasing it to an operator. This approach mirrors the model used for logistics hubs and commercial estates, but with higher technical complexity.
The advantages are clear:
Strong, predictable long‑term returns, often underpinned by institutional‑grade tenants.
Control over the asset, enabling alignment with local economic and environmental priorities.
The ability to shape community benefits, skills programmes, and local supply‑chain commitments.
However, direct investment requires significant upfront capital and a willingness to engage with a highly specialised asset class. Councils pursuing this route need robust due diligence, expert advisors, and a clear understanding of the operational demands.
2. Joint Ventures
Joint ventures offer a balanced middle ground. By partnering with an experienced private developer or operator, councils can share both the risks and the rewards.
This model allows councils to:
Leverage private‑sector expertise, particularly around design, energy integration, and technical operations.
Reduce exposure to development risk, while still retaining a meaningful stake.
Influence the project’s direction, ensuring alignment with local priorities.
Joint ventures can be especially attractive for councils that have strategic land but lack the in‑house capacity to deliver a complex digital‑infrastructure project alone.
3. Land‑Lease Models
For councils seeking low‑risk, low‑complexity involvement, land‑lease arrangements are often the most straightforward option. In this model, the council provides the land, and the developer takes responsibility for financing, constructing, and operating the data centre.
The benefits include:
Stable, long‑term income from ground rent.
Minimal exposure to construction or operational risk.
Retention of ownership of the land, preserving long‑term strategic value.
This model is particularly suitable for councils with surplus land in strategic locations, especially where grid access or fibre connectivity already exists.
4. Forward Funding
Forward funding allows councils to commit capital only once a pre‑let agreement is secured with an operator. This significantly reduces void risk and provides greater certainty over future income.
Under this model:
The developer typically handles planning and construction.
The council provides funding once the tenant is confirmed.
The council then owns the completed asset and receives the rental income.
Forward funding blends the security of a pre‑let with the long‑term benefits of asset ownership, making it an attractive option for councils with access to capital but limited appetite for speculative development.
5. Green Finance
Given the energy profile of data centres, and the growing pressure to integrate renewable generation, battery storage, and low‑carbon cooling, these projects are increasingly eligible for a range of green‑finance instruments.
Councils can explore:
Green bonds, where capital is raised specifically for environmentally aligned infrastructure.
Sustainability‑linked loans, with interest rates tied to performance on carbon reduction or energy efficiency.
Investment tied to renewable integration, such as co‑located solar, wind, or heat‑recovery schemes.
This not only broadens the pool of potential investors but also strengthens the environmental credentials of the project, a key consideration for both operators and communities.
Risks and Pitfalls to Avoid
The opportunity around data centres is significant, but so are the risks. Councils that move too quickly, or without the right expertise, can find themselves locked into long‑term commitments that fail to deliver local value. Equally, councils that move too slowly risk missing out entirely. Understanding the pitfalls is essential to making informed, strategic decisions.
1. Underestimating Power Constraints
Power availability is the single most common reason data‑centre projects stall. Grid delays can stretch into years, particularly in regions where capacity is already constrained. Councils must engage early with Distribution Network Operators (DNOs) and the National Energy System Operator (NESO) to understand what is realistically deliverable, and on what timeline. Without this, even the most promising site can become unviable.
2. Ignoring Community Impact
Data centres may be critical infrastructure, but they are still physical neighbours. Communities often raise concerns about: noise, particularly from cooling systems and backup generators. Visual impact, as data centres can be large, windowless, and industrial in appearance. Water usage, especially where evaporative cooling is used. Energy consumption, which can raise questions about local sustainability commitments. Transparent engagement is essential. Councils that bring communities into the conversation early, explaining benefits, addressing concerns, and setting clear expectations, are far more likely to secure support.
3. Overreliance on a Single Operator
While data centres typically attract strong tenants, overreliance on a single operator or hyperscaler can create long‑term vulnerability. Market conditions change, technology evolves, and corporate strategies shift. Councils should consider diversification, either through multi‑tenant facilities or through a broader digital‑infrastructure strategy, to reduce concentration risk.
4. Sustainability Blind Spots
The environmental footprint of data centres is under increasing scrutiny. Operators are expected to demonstrate credible plans around: Carbon reduction, including renewable‑energy sourcing. Cooling methods, favouring low‑carbon or water‑efficient technologies. Integration with local energy systems, such as heat‑recovery schemes or co‑located renewables. Councils should set clear environmental expectations from the outset. This not only protects local sustainability goals but also ensures alignment with national policy and investor expectations.
5. Misalignment with Local Skills
A data centre can bring high‑value jobs, but only if local people are equipped to take them. Without training pathways, apprenticeships, and partnerships with colleges or universities, the economic benefits may leak out of the region. Councils should work with operators to build local skills pipelines, ensuring that the community shares in the long‑term value.
A Call to Action for Local Government
The UK is entering a new era of digital infrastructure. Artificial intelligence is driving demand for compute power at a pace not seen since the explosive rise of logistics during the pandemic. Data centres are rapidly becoming the backbone of the modern economy, the unseen engines powering everything from public‑sector digital services to advanced manufacturing, health innovation, and AI‑driven research.
Councils have a unique opportunity to shape, benefit from, and steward this transformation. But the window is narrow. DIGIT’s reporting on FarrPoint’s 2025 Digital Connectivity Survey shows that only 4% of councils are preparing dedicated data‑centre strategies. In a market moving this quickly, early movers will gain the greatest advantage, securing investment, shaping local energy planning, and positioning their areas as digital‑ready places. Local authorities that act now, by assessing land, engaging developers, planning for power, and aligning with national AI ambitions, can place themselves at the forefront of the next major asset shift.
