Data centre sector eyes key emerging markets to deliver on soaring demand

An upsurge in data centre construction in emerging markets is driving up costs, according to research from global professional services company Turner & Townsend.

Analysing 46 global markets, the Data Centre Cost Index 2023 looks at cost trends across the sector. The research analyses data centre benchmarking costs from over 200 projects in over 20 countries, alongside insight from 246 industry experts.

Longstanding hotspots top the rankings of the most expensive places for constructing data centres. The top five locations by cost - Tokyo, Zurich, Silicon Valley, New Jersey and Singapore – remain unchanged overall from 2022, though different in order. Tokyo, at US$13.7 per watt, has displaced Zurich, now US$13 per watt, to take the top spot.

The more striking trend highlighted by the report is of rapid cost escalation in emerging markets. The average cost of data centre construction globally has risen by six percent over the last year, softening slightly from eight percent in 2022. By comparison, cost increases of between 11 and 22 percent have been seen in seven markets across Asia, Africa and Latin America.

The trend has been notable in south-east Asian markets. Jakarta (US$10.5 per watt) has risen to the seventh most expensive market globally for data centre construction, while Kuala Lumpur (US$10 per watt) has climbed to the 13th position in the rankings. The rapid digitalisation and economic growth in parts of Asia is creating new sources of opportunity in under-served markets.

Reflecting the rising demand and costs in emerging markets, Riyadh in the Kingdom of Saudi Arabia (KSA) is a new entrant to the index with an average cost of US$10 per watt. The growth in this market is being driven by strong investment in digital connectivity and a growing range of giga-projects to support the government’s nation-building agenda.

The largest year-on-year increase in price was seen in Cape Town, up from US$6.5 to US$7.9 per watt. Tokyo saw the second largest increase from US$11.4 to US$13.7 per watt. The overall results point to a narrowing of cost variation between traditional hubs and some emerging ones.

Soaring demand for data centres is being constrained by labour shortages – fuelling increased costs. 94 percent of survey respondents report skills shortages and 85 percent report ‘hot’ or ‘overheating’ conditions.

The report identifies power availability as an increasingly dominant factor in driving investment decisions. Nine in 10 (92 percent) of respondents to Turner & Townsend’s survey said that access to power is now more important for data centres than their geographical location.

Data centres are inherently energy-hungry, and the scale of power needed will only increase with the impact of artificial intelligence (AI). 88 percent report demand for data centre capacity for AI is increasing rapidly.

Despite the challenges facing data centre construction, respondents are optimistic about the resilience of the industry. 79 percent of those surveyed see the sector as recession-proof.

Commenting on the research, Rebecca Best, Director, UK Data Centre Cost Management lead at Turner & Townsend, said: “The data centre sector continues to provide immense opportunity. As individuals and businesses, our reliance on data is set to be further accelerated through the growth of artificial intelligence and machine learning. Demand for data storage is booming.

“However, on the other side of the coin there are growing challenges to delivery. Power availability, supply chain issues, skills shortages and increases in construction cost, alongside an urgent need to be more sustainable are converging to place hurdles in front of construction delivery.

“Encouragingly, the marketplace is adapting to these issues. Greater collaboration and investment in solutions, especially where power is concerned, is required to solve these key issues and ensure the long-term sustainability of our sector.”