Global professional services company, Data Centre Cost, recently released its 2022 Data Centre Cost Index, which analyses construction input costs – including labour and materials – across 45 key markets, alongside industry sentiment and insight from a survey of 250 data centre professionals.
This year’s results revealed that the average cost to build data centres has increased by 15 percent on average across global markets, with record-breaking inflation, amid delays to materials deliveries and competition for skilled labour from large-scale advanced manufacturing projects.
For the first time, Singapore became one of the top ten most expensive markets for data centre construction, with increased costs driven by changes to planning conditions, which demand reduced energy consumption and improved sustainability credentials.
Elsewhere, markets in Europe and the Middle East and Africa (EMEA), have experienced a mixed picture. All have seen cost inflation in local markets, however in some cases, the index result is affected by Foreign Exchange (FX) fluctuations with the US dollar (USD). The research presents and compares build costs in USD/Watt, therefore continued FX fluctuations should be kept in mind when utilising this data for cost comparisons.
The sentiment survey linked to the cost index, revealed that most respondents (95 percent) agreed that global materials shortages have impacted construction timescales, with most respondents citing delays of over 12 weeks. Meanwhile 92 percent of respondents also reported that they are struggling to meet construction demand due to a shortfall of experienced site teams.
The research indicated that in general, the sector is operating around continued logistical disruption, including port closures, scarcity in shipping containers, a shortage of drivers, and increased fuel costs. As a result, freight and haulage availability is low and prices are high.
That said, the sector seems to be less susceptible to recessionary pressures than other industries, with continued market growth expected and optimism remaining high, with 85 per cent of survey respondents stating that data centre construction has struggled to meet demand in 2022.
The Middle East data centre market
The Middle East’s data centre market has remained buoyant, the sector has observed a steady growth due to the outbreak of the COVID-19 pandemic, resulting in heightened access to internet-related services aided by nationwide lockdowns and restrictions. Research has revealed that the regional data center market is likely to grow at a CAGR of around 7% during the period 2020 to 2026 and that revenue is expected to cross over $3.7 billion by 2025.
Turkey, Saudi Arabia, and the UAE currently dominate the Middle East data centre market with aggressive government investments in the cloud computing and ICT sector, following various initiatives to transform regional economies. Across the region there are various governmental initiatives now in-focus, which will continue to drive the expansion of the sector, including; the ‘New Kuwait 2035’ nationwide digital roadmap, the ‘Digital Oman 2030’ strategy, the ‘UAE Vision 2021’ which highlights the UAE’s drive towards a fully digitalized society, and the ‘Cloud First Policy’ by Bahrain and Saudi Arabia, which encourages public sector migration from traditional data centres to cloud-based models.
Ajay Mangara, Associate Director, Turner & Townsend, comments: “The growing demand and adoption of cloud services, increased investment in IoT, big data analytics, and artificial intelligence, combined with smart city initiatives and the deployment of 5G technology by enterprises across the Middle Eastern region, has also attracted significant investments by private entities and will be a major driver for rapid growth over the forecast period.”
He continues:
“The region has seen significant investments from world leading hyperscale data center developers and major cloud providers, such as AWS and Microsoft, announcing new cloud Availability Zones to be delivered via their UAE data centres. In addition, Etisalat Group and Group 42 announced the merger and operation of their data center businesses under Khazna Data Centers, with major further expansion plans making Khazna the largest data center provider in the UAE.”
Data Centre sector outlook
There is a clear need to take an agile and pragmatic approach to procurement in the face of rising inflationary pressures, in order to strike the balance of growing strong working relationships with trusted industry partners, while diversifying the supply chain to reduce full reliance on any one contractor. Contractors themselves must adopt open and regular dialogue with stakeholders, to agree mutually acceptable ways of dealing with cost and schedule volatility on projects.
Whilst the Middle East data centre industry remains on a path of rapid growth, it too is facing continued headwinds such as supply chain bottlenecks, extended lead times of major components, skills and talent shortages, higher and more volatile commodity prices, and rising inflationary pressures. That said, overall, the Middle East’s data centre market outlook for 2023 looks positive, with governmental ambitious initiatives set to boost the deployment and growth of the region’s Data Centre Market in the coming years.