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AI data center boom threatened by power availability and limited supply chain capacity

AI data center boom threatened by power availability and limited supply chain capacity

The global surge in AI and machine learning development is fuelling a rapid expanse in the data center market. But this progress risks being hamstrung by power constraints and equipment delays. AI requires larger, more complex and power-hungry data centers to manage the intense technological demands, but the supply chain and national power grids are struggling to keep up.

The global surge in AI and machine learning development is fuelling a rapid expanse in the data center market. But this progress risks being hamstrung by power constraints and equipment delays. AI requires larger, more complex and power-hungry data centers to manage the intense technological demands, but the supply chain and national power grids are struggling to keep up.

The annual Data Centre Cost Index from global professional services company, Turner & Townsend, analyses the current average cost per watt to build data centers in 50 global markets, and uses survey responses from 250 sector leaders to pinpoint trends across the data center industry.

The top of the cost index shows how costs are being impacted by constraints in high-performing markets, where demand is exceeding available power, the supply of skills and materials. Tokyo, at US$14.3 per watt, is the most expensive market for the second year in a row – with labour shortages and new limits to working overtime continuing to put strain on delivery. Meanwhile, Singapore is now the world’s most power-constrained data center market and has risen into 2nd place in the rankings, at $US13.8 per watt, from 5th position last year.

These are followed by longstanding hotspots including Zurich (US$13.3 per watt), Silicon Valley (US$12.8 per watt), and New Jersey (US$12.4 per watt) – which appear consistently in the top five of the index.  These mature markets known for industrial innovation and technology can be expected to see further growth as the AI and machine learning revolution continues.

This is the eighth year of the index, and sees five new markets added: Lagos, Helsinki, Lisbon, Cardiff and Bordeaux. This reflects the varied and growing number of new targets for investment in data centers.  Given the limited existing supply chain capability in these new markets, several enter the index with higher comparative costs than might be expected, but this is forecast to stabilise over time. Lagos (joint 6th at $12.0 per watt) is one example of this – with costs driven by the need to import much of the labour and materials.

The data center pipeline in Scandinavian markets also remains strong. The colder climates and access to renewables counteract common challenges relating to cooling and net zero. Yet high dependency on an international supply chain and imported talent has cost implications. Oslo, Copenhagen and Stockholm now stand at 9th and joint 10th respectively in the rankings. Competition for supply chain expertise is set to heat up over the next 24 months as data center developers move into the Scandinavian market and compete with established hyperscalers for resources.  Skills shortages are also partly behind Auckland’s rapid rise from 16th place in 2023 to joint 6th, as it sees a limited supply chain and some loss of skills to neighbouring Australia.

Joining Copenhagen and Stockholm in joint 10th in the rankings is London at US$11.2 per watt.  The UK is set to be an increasingly important market as investment is spurred on by the British government’s recent classification of data centers as ‘critical infrastructure’.

Conor Nugent, Europe Data Centre Cost Index Lead at Turner & Townsend, said:

“Activity in the European data center market has continued to increase year on year with investment reaching record levels in 2024. Investment continues to flow into the traditional markets of Frankfurt, London and Paris, while Dublin and Amsterdam have seen a reduction in growth due to planning and power constraints. Other regions with significant pipelines in 2025 and 2026 include the Nordics, Madrid and Milan. The UK is also primed to be an increasingly important player in the European data centre market with the UK government recently classifying data centers as “critical infrastructure”. This shift in policy has coincided with some major UK focused data centre announcements, such as Blackstone’s US$13bn investment into AI data centers in Northumberland.

Transactions have not been limited to data centre developments as there have been significant mergers and acquisitions, with numerous data centre-focused contractors, consultancies and suppliers attracting investment.

CSA (Civil, Structural and Architectural) costs have generally stabilised, however MEP (Mechanical, Electrical and Plumbing) and OFCI (Owner Furnished Contractor Installed) elements remain high with availability of skilled labour and key materials remaining as key challenges. Copper and aluminium prices remain high on metal exchanges due to high global demand, and this is feeding into many aspects of data centre price volatility.”

Click here to access the full report.

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