In a global landscape increasingly reliant on digital infrastructure, a surge in data center construction in emerging markets is reshaping the dynamics of the industry, according to a comprehensive report from Turner & Townsend.
The Data Centre Cost Index 2023, an exhaustive analysis of 46 global markets, reveals a discernible trend of escalating costs, driven by burgeoning demand and unprecedented growth in emerging markets. The study, which draws on data from over 200 projects in more than 20 countries and insights from 246 industry experts, underscores the challenges and opportunities facing the data center construction sector.
Traditionally expensive locations for data center construction continue to dominate the top ranks, with Tokyo emerging as the costliest at $13.7 per watt, toppling Zurich from its previous position. Silicon Valley, New Jersey, and Singapore round out the top five, showcasing a stable yet reordered hierarchy of high-cost construction locales. The report highlights a more significant trend in emerging markets, where costs have surged between 11 and 22 percent in seven Asian, African, and Latin American markets. Southeast Asian markets, in particular, have experienced noteworthy increases, with Jakarta and Kuala Lumpur ranking as the seventh and 13th most expensive global markets, respectively.
Europe regional viewpoint
The European data center market remains buoyant, as it continues to attract foreign investment, particularly from North America. While many European markets are welcoming data center investment, securing project permitting approvals and power connections is becoming more difficult due to a tightening regulatory landscape, amplified by changing public opinion.
Despite this, a new wave of data center investment occurred across Europe in 2023, including Google’s launch of their Warsaw and Milan cloud regions. Data center developers also invested heavily in European markets, with the strongest investment continuing in traditional markets such as Frankfurt and Dublin. Emerging markets such as Madrid, Milan and Warsaw also saw significant investment in 2023.
The European data centre industry is facing continued headwinds, including rising inflation and interest rates, access to power, local authority permitting, supply chain bottlenecks, skills and talent shortages and a growing climate crisis. The challenges have been compounded by an ongoing energy supply crisis and the conflict in Ukraine. These challenges have led to increased pressure on return on investment, which has heightened the need for smart procurement plans and commercial rigor during construction phases.
Skills shortages
The surge in demand for data centers, driven by the rapid digitalization and economic growth in emerging markets, is encountering constraints due to labor shortages, further inflating costs. An alarming 94 percent of survey respondents reported skills shortages, and 85 percent noted ‘hot’ or ‘overheating’ conditions.
Power availability has emerged as a pivotal factor in investment decisions, with 92 percent of respondents asserting that access to power now surpasses geographical location in importance. The energy-intensive nature of data centers, exacerbated by the growing demand for artificial intelligence (AI) capabilities, underscores the industry’s reliance on a stable and abundant power supply.
Despite these challenges, the report suggests that the industry remains resilient. A striking 79 percent of surveyed experts view the data center sector as recession-proof, reflecting optimism in the face of evolving challenges and the increasing centrality of data infrastructure in the global economy.
To access the full report, click here.