EU and UK financing trends are reshaping data centre projects

The financing of data centres has become a focus for energy and infrastructure funders and investors alike, as ever-increasing demand for digital infrastructure continues to drive the need for these complex and capital-intensive projects. 

In today’s market, the capital stack is more than a means to fund data centre development. As with any major infrastructure development, it is a key driver for maximising return on investment. The projects that secure the best funding terms are generally those that can demonstrate predictable revenues and credible sustainability outcomes from the outset. Rigorous financial planning is therefore necessary to ensure not only delivery of the project, but also its bankability and overall cost of capital.

Data centres require significant financial input at various stages of the project lifecycle: planning, construction and operation. Depending on the project’s scale and market specifics, financing can come from diverse sources, including senior and mezzanine debt provided by financial institutions, debt capital market issuances, asset financing arrangements and/or equity investment. The ability to blend these disparate funding sources allows sponsors to balance competing investment criteria of cost, control and risk allocation.

Accurate financial modelling will be as important as strategic project location and offtake arrangements for ensuring not only the operational stability and long term success of the project but also the return on capital investment. Choices between project versus corporate finance, and whether to use green instruments, may also influence the choice of technology, location and risk management. This includes  securing reliable power supply and cooling solutions, heat offtake arrangements and structuring customer offtake contracts. Aligning the financing package with these fundamental components of data centre development ensures operational efficiency and profitability.

Blending capital sources 

Not all capital is created equal, and in data centre development, the mix of capital matters as much as the amount. 

The most competitive projects plan the timing and types of investment comprising the capital stack at each stage of the project's lifecycle, blending different sources of funding to secure flexibility during construction and reduce the cost of capital following project completion, when operational revenues become available. In practice, that means looking beyond a single source of funding to secure a flexible funding package to protect against development risk until the project becomes operational.

Debt financing options

Debt financing is required for most large infrastructure projects, but its form should match the size and stage of the development. Bilateral bank loans may suffice for smaller assets (including modular projects) or relationship driven deals and can be arranged as general corporate facilities or structured as asset financing secured against the asset. 

For larger, capital intensive assets including mid-sized to hyperscale data centres, syndicated financings may be needed. This may include different classes of debt (for example, senior and mezzanine), to spread risk between financial institutions and secure greater levels of committed term debt together with options for bonding and interest and/or foreign exchange hedging. 

Debt capital market instruments can also deliver scale and potentially longer tenors, but such instruments will more readily favour established operators with strong credit profiles who can meet the market’s disclosure and rating expectations.

Equity investment

Equity financing underpins bankability and absorbs early stage risk. Specialist infrastructure funds and other investors are active in the sector, backing new builds and expansions on the basis of stable, growing cash flows. Where public markets are accessible, share issues can raise significant additional capital, albeit with equity dilution. Equity can then be used to de risk the project during development of the data centre and while tenants are secured, with cheaper debt raised subsequently to fund the asset once operational.

Alternative funding sources

Alternative financing provides flexibility to supplement senior and mezzanine debt, particularly for short-term funding needs without distorting overall leverage. Such debt has become increasingly available from alternative credit providers and equity investors, and may be made available higher up the corporate structure to be structurally subordinated to the senior and mezzanine project debt and to avoid over‑gearing. Asset financing can similarly fund  specific equipment purchases, preserving other funding lines for civil works and core infrastructure capital expenditure (capex).

Financing structures

The choice between project and corporate finance determines the gearing, pricing and tenor of the debt. Corporate finance availability also depends on several factors, including sponsor support and the status of the data centres to be financed, whether a single development project or a portfolio of projects comprising both development and operational assets.

Project finance 

Project finance raises capital for a single development and repays it from that project’s own cash flows. It is particularly suited to new builds where revenues can be secured through long term leases to anchor tenants and operators. Funding is made available to a special purpose vehicle (SPV), with limited recourse to sponsors beyond the provision of equity at an agreed debt to equity ratio and potential contingent equity support for unbudgeted costs (such as cost overruns). 

This approach suits early-stage development funding, enabling the SPV to enter construction and long-term project contracts. It also enables debt sizing and pricing based on a developed financial model while imposing discipline of agreed budgets, milestones and reporting to ensure project delivery in accordance with an agreed timetable aligned with lender and customer offtaker requirements.

Corporate finance

Corporate finance raises capital at company level against the sponsor's or corporate group's overall balance sheet strength. This approach offers speed and flexibility, particularly for portfolio financing, with the security package potentially extending to other group assets, which may include additional data centres. In this case, risk is shared more widely across the sponsor's business rather than being limited to the shares and assets of a single SPV project company. 

Different financing options offer different benefits: project financing offers certainty and ring-fencing whereas corporate financing delivers speed and optionality. It is therefore paramount that the chosen financing structure aligns with the sponsor's overall business strategy.

Legal and regulatory considerations

Planning and regulatory compliance are key factors for funder's credit approval. A clear compliance plan can accelerate due diligence and improve terms, whereas uncertainty surrounding planning or regulatory compliance will delay credit approvals and increase financing costs. Because data centres straddle planning, digital and environmental regimes, robust legal groundwork is critical for both bankability and delivery.

Compliance requirements

Local rules set the baseline for design and operation. Planning and building standards, cybersecurity obligations and personal data protection (such as the General Data Protection Regulation in the EU, the Data Protection Act 2018 and the new Data (Use and Access) Act 2025 in the UK) must be factored into specifications, contracts and operational plans. For cross border operators, data localisation and international transfer rules vary by jurisdiction and can materially influence financing strategy, from where capital is raised to lender participation and timelines. 

Sustainability is now central to financing decisions. Investors and lenders increasingly link funding to demonstrable performance on energy efficiency, carbon dioxide reduction, water stewardship and wider social impact. Credible ESG performance can unlock green financing such as green bonds and sustainability linked loans, with more favourable pricing. The practical implication is clear: define measurable key performance indicators and establish monitoring and reporting systems to evidence delivery, not just intent.

Contractual obligations

Loan agreements are structured to deliver predictability. Proceeds are typically ring‑fenced to the project and disbursed against an agreed budget and timetable, with regular construction and financial reporting required. Covenant packages commonly oblige borrowers to maintain specified historic and projected financial ratios and reserves (such as leverage limits and debt service reserves), maintain adequate project insurance, and avoid actions that could impair repayment. These provisions ensure that the project progresses in compliance with an agreed budget and timetable and must be reflected in operational planning.

The security package is the cornerstone of lender protection. Security usually covers the SPV's shares and assets required for the construction and operation of the project. This includes the site, equipment, rights under project agreements and direct agreements with major project counterparties, with the finance documentation providing lenders with acceleration rights upon default. The nature and extent of the security will vary depending on the specific jurisdiction where the data centre or other secured assets are domiciled. In practice, a comprehensive security package provides for easier syndication of market risk and more favourable leverage and pricing terms.

New trends and future prospects

The data centre industry is evolving rapidly, reshaping financing models. Technological advancements, sustainability pressures and market shifts are transforming project funding. More innovative technological solutions are expected in the coming years, such as green financing products.

Sustainability now driving data centre financing. Sponsors should compare debt products offered by different financial institutions. Indicators like energy efficiency, water consumption and heat offtake are particularly important for data centres. Optimising these metrics can lead to more favourable financing conditions, such as lower margins for sustainability-linked loans.

Green bond issuances are increasingly used for projects demonstrating reduced carbon dioxide emissions and improved infrastructure energy efficiency. The growth of these products reflects increasing regulatory and planning requirements for environmentally sustainable data centres worldwide.

Technological innovation

Artificial intelligence and large-scale computing are significantly affecting financing models. Modern data centres supporting advanced AI algorithms require higher computational density, necessitating greater capital investment in cooling, power and security infrastructure. This drives data centre operators to seek more flexible, long-term financing to adapt infrastructure to new technological requirements.

Innovations such as cloud computing, the Internet of Things, and 5G development are also driving the demand for data centres and associated financing.

Osborne Clarke comment

Three forces will define the next phase of data centre finance: sustainability, technology and market conditions.

ESG is now as much a pricing mechanism as a compliance exercise, and projects with clear key performance indicators and reporting frameworks will access capital more readily and on better terms.

Technological advancements, particularly in AI, cloud computing and 5G technology, is raising baseline specifications and capex, favouring flexible financing structures. Meanwhile, macroeconomic trends will continue to influence capital availability and cost. Sponsors who align their data centre businesses to these developments, treating sustainability as a lever, technology as a design driver and market conditions as a timing constraint, will be best placed to secure competitive financing terms.