Skills and materials struggle to keep pace with data centre demand

Global material shortages are causing delays to data centre construction and escalating costs in the face of rapidly accelerating demand, according to research from global professional services company Turner & Townsend.

The Data Centre Cost Index 2021 reveals the rising costs of constructing data centres across global markets.  84 percent of participants to the business’ global survey reported that they are experiencing skills shortages for experienced data centre construction teams – indicating the ongoing challenges of ensuring supply can meet demand.

The research analyses construction input costs – including labour and materials – across 44 key markets, alongside industry sentiment and insight from a survey of over 200 data centre professionals.  This year, Tokyo moved to first place as the most expensive market for data centre construction at $12.50 per watt, ahead of last year’s top market Zurich (now $12.0 per watt).

In the US, Silicon Valley and New Jersey remained tied in third place, with the cost rising to $10.30/w this year compared to $9.80 last year.  Portland joined the expanding list of markets in the US, placing tenth at $9.20/w.

The 2021 report included four new markets, reflecting growing investor appetite to meet demand for capacity outside traditional priority regions.  In their first year in the index, Montevideo ($7.60/w) and Bogota ($6.30/w) ranked ahead of other key locations in developing nations such as Mumbai, Chennai, Shanghai and Beijing.  Latin America continues to emerge as a market of rising interest to data centre investors looking for new sources of opportunity.  This is also true of Africa, where Nairobi ($7.0/w) moved up the index reflecting a growing buoyancy in African locations. 

By comparison, the mature FLAPD markets (Frankfurt, London, Amsterdam, Paris and Dublin) saw prices stabilise or fall.  With the complexity of post-Brexit work permit regulations, combined with the uncertainty of COVID-19 travel restrictions, competition for data centre projects in the UK  for the established supply chain is fierce.  London moved down seven places from last year, with construction costs per watt remaining stable at $9.10/w.

Frankfurt, Amsterdam and Paris all remained outside the top ten, while secondary European markets such as Milan and Vienna continued to place among the middle-ranked markets. Meanwhile, new market Oslo placed in sixth at $9.50/w.

In a continuation from last year’s index and survey, 70 percent of respondents consider data centres to be a recession-proof industry, such is the ever-growing level of demand.  95 percent of respondents expect demand for data centres to rise in the next year, an increase from 84 percent last year. 

However, the report highlights a new challenge of meeting demand, with 87 percent agreeing that material shortages are causing delays to construction and contributing to escalating costs.  Only 29 percent reported using modern methods of construction on data centre projects, which indicates a potentially high priority area of focus to successfully meet demand.

The report warns of further cost escalation to meet decarbonisation goals.  The survey results indicate mixed confidence in the ability of data centres to achieve net zero carbon, with a 50/50 split on whether data centre owners/operators have a clear route map to achieving net zero and only 40 percent considering net zero carbon data centres to be achievable within five years. 

With continued developments to the energy efficiency of data centres themselves, there is a growing perception that innovation in construction methods and process efficiencies are the key to creating a step change in decarbonisation of the industry.  Retrofit and conversion of existing shells is predicted to increase by 58 percent of survey respondents.

Commenting on the research, Dan Ayley, global head of hi-tech and manufacturing at Turner & Townsend, said:

“This year’s index demonstrates the growing prominence and opportunity beyond the core traditional markets for data centre investment.  We are seeing growing demand and continued optimism reflected in cost inflation, but with significant headwinds on the horizon as well. 

“The challenge for the global industry is how to deliver investment against a backdrop of rising material and labour costs as well as a critical decarbonisation agenda.  The sector needs to adopt a programmatic approach which looks holistically at supply chain capability – identifying areas of innovation in build processes and ongoing operations that improve cost and carbon performance.”