By Toby Sterling

AMSTERDAM - European data centres will expand capacity by 22% this year and yet struggle to meet demand, raising the risk Europe will be left be further behind in the race for artificial intelligence (AI), industry analysts told a conference on Wednesday.

China's DeepSeek delivered a shock to markets last week by raising the prospect of more energy-efficient AI models.

That is unlikely to relieve Europe's pressing issues of electric grid congestion and a shortage of suitable sites for new centres.

Large software companies, such as Google and Amazon, plan to press ahead with plans for "hyperscale" data centres, and European corporations also need more AI-linked space.

"Providers can't build supply fast enough to keep up with demand," Kevin Restivo, director of data centre research at consultancy CBRE, said in his keynote address at the Kickstart Europe conference. 

Space shortages are most acute in the traditional big European data centre hubs of Frankfurt, London, Amsterdam, Paris and Dublin, where electric grid constraints are limiting capacity growth. 

As a result, secondary markets are booming around Europe. Milan, Warsaw and Berlin are expanding the fastest in 2025, but firms are increasingly looking outside cities.

CBRE forecasts capacity coming online this year - measured in the data centre business by the amount of electricity needed to power it - will be around 9.1 gigawatts, with hyperscalers taking up more than a third.

CBRE estimates the average price across Europe to build "colocation" space, or space rented by big companies, inside a data centre at 12 million euros ($12.50 million) per megawatt.

That implies Europe's industry is expanding by more than 100 billion euros this year, but that pales beside ongoing U.S. investments, notably the "Stargate" initiative for Oracle, Microsoft and OpenAI to spend $500 billion over the next four years.

"Europe risks falling into technological dependency, watching as AI leadership consolidates between the U.S. and China," Stijn Grove, managing director of the Dutch Data Center Association, said.

($1 = 0.9602 euros)

(Reporting by Toby Sterling; editing by Barbara Lewis)