Bank of England Questions Lenders About Data Centre Loans for Projects Without Tenants

In property finance, lending against a building before an occupier has committed to lease it is known as speculative financing. The central bank is not opposed to the practice in principle, one of the people told Bloomberg, even though it is widely seen as risky. The questions are part of a broader effort to understand how much money UK lenders have put into the sector and on what terms. The Bank of England declined to comment.

The inquiries matter because data centres have become one of the largest new destinations for credit in the AI build-out, and a facility without a tenant depends on someone signing a lease before the loan comes due. If AI demand falls short of what developers are betting on, those are the loans most exposed to losses, and the Bank wants to know where they sit.

The supervisor began looking at data centre lending last year, after the sector's rapid growth raised concerns about how closely the companies involved depend on one another, according to the Bloomberg report. Last month the Bank's Financial Policy Committee warned that AI-linked investment showed "increasing leverage, opacity and, at times, 'circular arrangements'" that could amplify losses if the cycle turns.

There are signs that some lenders have already pulled back. The Bayes UK commercial real estate lending report, published last month, found that four lenders had stopped lending to data centres, and that owners of poorly located or lower-quality facilities were finding credit particularly hard to obtain. Debt funds, rather than banks, supplied almost half of the speculative finance for alternative property assets, including data centres, in the first half of the year, the report found.

The Bank for International Settlements has raised a related concern: that weak disclosure of deal terms, particularly for long-dated hyperscaler leases that include exit options, could allow the same asset to be pledged as collateral more than once.

The scrutiny lands while the UK government is counting on data centres to help drive growth. Projects have been slowed by local opposition and long waits for grid connections, but large commitments keep coming. Blackstone is leading a £10 billion project in north-east England, Google has opened a facility on the outskirts of London as part of a £5 billion UK investment, and this week Brookfield and Qatar's Qai agreed to a first phase worth £2.5 billion on a North Yorkshire campus with Drax Group.

The Bank of England has not said whether its questions will lead to formal guidance, capital requirements or stress-test scenarios for data centre exposures. Its next Financial Stability Report is the most likely place for any findings to appear.