New hotspots driving cost hikes in key data centre markets

The Data Centre Cost Index 2019 highlights the intensification of investment in leading locations in the global data centre network as a trigger for escalating costs.  Globally, over 40 per cent of markets surveyed are showing 'hot' construction conditions – where competition for supply chain resources is putting pressure on budgets.

The research analyses input costs – including labour and materials – across 32 key markets, alongside industry sentiment and insight from data centre professionals.  

The 2019 report points to the rise of new hotspots across the globe as technological investment in emerging economies takes hold.  In Nairobi, Kenya, average build costs stand at $6.5 US per watt on the back of investment required to meet the government’s focus on digitisation of the economy and in response to the arrival of tech giants. 

Cost pressures are contributing to the growth of secondary markets in key geographies – including in the US and Europe.  In California, Silicon Valley has risen to be the third most expensive place to build globally at a rate of $9.4 US per watt – with unprecedented construction market conditions. Inter-state competition to attract hyperscale investment in the US continues and the study indicates that construction costs in both Dallas and Phoenix ($7.4 US per watt and $7.1 US per watt respectively) are favourable over the world’s largest data centre market of Northern Virginia where costs stand on average at $8 US per watt.

European markets are seeing a significant shift, with capital costs of hyperscale development in the dominant markets of Scandinavia - in Stockholm ($8.6 US per watt) and Copenhagen ($8.5 US per watt) - now exceeding those of the established FLAP markets Frankfurt ($7.6 US per watt), London ($8.5 US per watt), Amsterdam ($7.8 US per watt) and Paris ($7.7 US per watt). Zurich remains the most expensive market to feature in the report but is also expected to be one of the hottest markets for Europe in 2020.

In this environment, respondents to Turner & Townsend’s survey view delivering within budget as a critical challenge, with 90 per cent seeing this as more important than innovation. 

Global demand for new space looks set to continue into 2020, with just nine per cent of respondents to the research believing that data centre demands have been met in their markets in the last year – down from 12 per cent in 2018.  70 per cent of those surveyed highlighted the impact of data sovereignty and data protection acts – including those being brought in by the EU, Switzerland and Kenya – as a major catalyst for demand.  

The most significant limiter on growth over the next five years is seen as availability of power, especially in the context of pressure on the industry to decarbonise.  In Turner & Townsend’s survey, the industry is split 50:50 on whether technological advances with solid state batteries alongside green energy sources can render traditional fossil fuel generators obsolete. 

Dan Ayley, global head of hi-tech and manufacturing at Turner & Townsend, said:“Data continues to be one of the most valuable commodities.  As deals get bigger and more profitable, we are seeing investment in both established hot spots and emerging markets heat up – putting pressure on cost and resources.”

“Although our report points to certainty in delivery as the key issue for the sector across global markets, sustainability is one of the most pressing challenges coming down the track. With power density requirements for data centres increasing by as much as 50 per cent year on year, demonstrating steps towards decarbonisation needs to be a priority for how hubs are conceived, built and operated across their lifecycle.”