It’s no secret that the pace of digitalization continues to accelerate. More data is being generated, processed, and stored in less time. Demand for future-proof, high-performance, and sustainable data centers is outstripping supply globally. In this fast-moving environment, choosing the right model for data center development and construction, along with the right partners, is critical to success.

The new reality: Partnerships and greater municipal involvement

New challenges require new answers, especially around future financing and ownership structures for data centers. In addition to traditional relationships, joint ventures are increasingly gaining traction. While such collaborations are already seeing success, there is still significant untapped potential.

Energy providers, landowners, and especially cities and towns must participate more. For data center developers, the key to success lies in supporting all conceivable implementation models in the future. A modern developer like GARBE.DC brings the necessary expertise and resources for this and can cover the entire spectrum with its portfolio and local presence in 13 countries.

Three paths toward the goal: Success models for data center development

To meet the diverse requirements of projects, there are some key models for developing and providing data centers. Flexible developers with comprehensive know-how can implement all variants.

Three possible options are central in the industry:

• Traditional sales model: A developer plans the data center, building it on purchased land. After completion, both are sold. This is how the company and the landowner make their profit.
• Sale and leaseback model: Someone owns a newly completed data center, sells it to an investor, and then leases it back directly. The construction is financed either by the initial owner or through a funding vehicle. This means, in some cases, the data center is first acquired from third parties and then used in a sale and leaseback model. The advantage for the operator is that they do not have to hold the asset permanently, saving on capital expenditures (Capex). They only incur ongoing operating expenses (Opex).
• Joint venture model: Multiple partners are involved in a data center over many years, all benefiting from long-term economic gains.

Municipalities as new drivers of data center development

More local government bodies are recognizing the potential of data centers and are taking the initiative themselves. They have suitable land for new projects and are increasingly seeking developers for implementation. Municipalities need support since they typically lack direct market access and have neither the experience nor the personnel to implement projects. Their interest lies in the economic opportunities and additional benefits of data centers, such as improved digital infrastructure and the use of waste heat in district heating systems to decarbonize the future.

Just a few years ago, it would have been unthinkable that cities and towns actively provide land for data centers, sometimes already sign electricity contracts, and cash in on these projects. Today, this is a reality.

Entering into partnerships

In the typical joint venture scenario, cities and towns contribute their land as an asset to the partnership. Over the decades, they participate in the profits of the company operating a data center on the land. The data center is built as part of the joint venture, is owned by the project participants, and is made available to the operator. In this model, the selected developer manages the project, plans the data center, obtains all permits up to the start of construction, may contribute its own capital, and seeks additional investors. As a partner with a certain percentage, the company remains involved on a long-term basis.

So, why are joint ventures particularly attractive for municipalities? Unlike when simply selling a piece of land, they remain involved in decisions on an ongoing basis. Furthermore, instead of receiving only a one-time sales profit, they benefit from ongoing profit distributions over decades, resulting in significantly higher total revenues.

Despite advantages, joint ventures have so far been rarely considered in Germany. Often, quick land sales and short-term profits take precedence. There is often a prevailing political mindset: Officeholders are elected for only a few years and tend to focus on short-term achievements rather than long-term planning. A shift in thinking is needed to encourage more forward-looking strategies.

Data centers: Drivers for regional development

The establishment of data centers brings numerous additional benefits to cities and towns. It promotes digital infrastructure and the economy in the respective region. It incentivizes companies to set up shop and invest locally. New, future-oriented business models and more jobs are being created, which in turn increases municipal revenues, while schools and universities benefit from further digitization.

Another advantage: The waste heat from data centers can be used to heat buildings, from businesses and homes to public facilities like government offices, sports halls, or public swimming pools. This reduces energy costs and increases sustainability in a region. Additionally, data center energy storage systems can flexibly absorb or release energy and thereby relieve the public power grid. These balancing services help smooth out load curves and prevent power outages due to grid overload.

Utilities as key partners

Close cooperation with energy providers is a central success factor in data center development. Power supply is currently one of the biggest challenges in project implementation – it must be considered from the outset and planned early. Here, it is important to coordinate intensively with the providers and proceed cooperatively.

Furthermore, energy companies are seeking data center developers themselves. These companies have land with a direct power supply, with a surplus of energy next to their own infrastructure. The construction of data centers in collaboration with or even on behalf of energy providers will increase in the future.

Case study in Denmark

A current example of data center development in cooperation with a public administration is the project by GARBE.DC and the Guldborgsund Municipality. The officials in Denmark conducted a tender for the sale of a 35-hectare site in the Business Park Falster, with the aim of establishing an AI Data Center Campus on the land. GARBE.DC was unanimously selected as the preferred partner following a public selection process. Due diligence will now commence. Over the coming months, a series of studies will be conducted before the final purchase agreement is signed and construction begins.

The deal could trigger a total investment of up to 20 billion Danish kroner and create hundreds of jobs in North Falster. With an initially planned capacity of 350 megawatts, the data center would be the largest in Denmark and one of the largest in Europe. The campus concept allows for the development of six to nine data center units, accommodating both smaller customers and large hyperscale players.

Paying attention to the success factors

Germany and other countries must invest in new digital infrastructure. Countries that actively engage in this and aim to build a data center will remain competitive for years to come.

Before starting off, each project needs to choose a suitable model for the particular project and find the right strong partners. Joint ventures offer all participants, especially cities and towns, the opportunity to remain involved long-term and achieve higher revenues. This new form of partnership will be critical in the years to come.