Sweden's Data Center Gold Rush: Why Secondary Cities Are the New Frontier

Stockholm's soaring commercial rents and shifting tax policies have created a pivotal moment for the Swedish data center market. As investors seek scalable, sustainable opportunities, secondary cities like Gothenburg and Malmö are emerging as strategic hubs. Their blend of affordable infrastructure, renewable energy partnerships, and robust digital ecosystems positions them to capitalize on the €2.73 billion projected market value by 2029.

The Stockholm Paradox: High Costs, Limited Flexibility

Stockholm's prime office rents hit SEK 9,650 per sq m in late 2024, driven by demand for central locations. Yet vacancy rates in decentralized areas reached 16.5%, signaling oversupply in non-core markets. Meanwhile, the abolition of energy tax deductions for new data centers (effective July 2023) has further constrained profitability. While existing facilities operational before this date may still qualify for reduced tax rates, the era of generous incentives is over.

The combination of high costs and policy shifts has made Stockholm less attractive for greenfield data center projects. Investors now turn to secondary cities, where the calculus of risk and return is far more favorable.

Secondary Cities: A Sweet Spot for Data Center Investment

1. Cost Efficiency Meets Sustainability

Gothenburg and Malmö offer 30-40% lower land and construction costs compared to Stockholm, while their cold climates reduce cooling expenses. Both cities have carbon-neutral targets by 2045, aligned with EU regulations, and are pioneers in waste-heat utilization. For instance, data centers in Gothenburg can feed excess heat into district heating systems, turning a liability into a revenue stream.

2. Infrastructure and Tax Leverage

• Renewable Energy: Over 85% of Sweden's electricity comes from renewables, with Gothenburg and Malmö leveraging hydropower and wind energy.
• Sustainability Certifications: By 2025, 45% of commercial properties in these cities must meet green standards—a tailwind for data center operators seeking ESG compliance.
• Existing Tax Benefits: Facilities operational before July 2023 retain reduced energy tax rates, lowering operational costs.

3. Strategic Location and Growth

• Gothenburg: A tech and manufacturing powerhouse with 5G infrastructure and proximity to the North Sea, ideal for latency-sensitive applications.
• Malmö: A gateway to continental Europe, with 4.65% residential prime yields and a vibrant startup ecosystem, reducing talent acquisition costs.

Market Growth and Player Dynamics

The Swedish data center market is booming, with giants like Equinix and Microsoft expanding in Gothenburg, while newcomers like HIVE Digital Technologies target Malmö. Key trends include:
- AI and Big Data Integration: 5G and edge computing demand are driving demand for localized data storage.
- Waste Heat Partnerships: Over 70% of new data centers in Sweden now integrate district heating, enhancing ROI.

Investment Strategy: Where to Play

1. Focus on Existing Facilities: Prioritize acquisitions of pre-2023 data centers in Gothenburg/Malmö to capture tax benefits.
2. Develop in Green Zones: Partner with municipalities on projects that reuse waste heat, accessing EU state aid for sustainable initiatives.
3. Target Hybrid Models: Invest in modular, scalable facilities that balance cooling needs with proximity to urban hubs.

Risk Considerations: Monitor macroeconomic factors like Sweden's delayed 2026 recovery and energy price volatility, but the long-term tailwinds of digital transformation and sustainability demand outweigh near-term risks.

Conclusion: The New Frontier is Here

Stockholm's era of data center dominance is waning. Investors seeking high returns must pivot to secondary cities, where cost efficiency, sustainability, and infrastructure align to create a compelling value proposition. With tax levers still in play for existing assets and a market set to double by 2029, the time to act is now.

As the digital economy expands, Sweden's secondary cities are not just alternatives—they are the future.