Data center construction boom turns focus to emerging markets

According to Turner & Townsend's 2023 Data Center Cost Index, the boom in the data center construction industry is increasingly focused on emerging markets. Last year, the cost of building data centers rose by 6% globally, and in emerging markets, the increase was as high as 22%.

While the five most expensive locations to build data centers remain Tokyo, Zurich, Silicon Valley, New Jersey, and Singapore, significant changes in the rankings show the rise of several Asian markets. Tokyo replaced Zurich at the top of the list with a price of $13.7 per watt. At US$10.5 per watt, Jakarta and US$10 per watt in Kuala Lumpur saw significant price increases in these two cities, ranking seventh and tenth respectively.

Rapidly rising construction costs in emerging markets characterize this year-on-year trend. From 2022 to 2023, global average cost growth will be 6%, lower than the 8% growth in 2022. However, seven emerging markets in Asia, Africa, and Latin America witnessed significant increases in construction prices, ranging from 11% to 22%.

Southeast Asian markets such as Jakarta and Kuala Lumpur have received great attention, with Kuala Lumpur ranking 13th overall. Rapid digitalization and economic development in these regions have brought new opportunities to underdeveloped markets.

Riyadh, Kingdom of Saudi Arabia, appears in the index for the first time, with average construction costs of $10 per watt. This is largely due to significant investment in digital connectivity and a series of large-scale projects designed to support the country’s development plans.

The construction cost gap between traditional hubs and some emerging locations is narrowing, with prices rising significantly in Cape Town from $6.50 to $7.90 per watt and in Tokyo from $11.40 to $13.70 per watt.

High demand for data centers continues to face the hurdle of labor shortages, further driving up costs. A whopping 94% of survey participants reported skill deficiencies, with 85% confirming "hot" or "overheating" conditions. On the other hand, 92% of respondents said power availability is now more important than geography when deciding where to build a data center.

Focusing on the growing demand for artificial intelligence (AI), 88% of respondents confirmed that demand for AI in data center capacity is rapidly escalating. As a result, the power demands of these energy-intensive data centers are expected to grow.

Despite setbacks in data center construction, the industry remains optimistic, with 79% believing the industry is recession-proof.

Rebecca Best, head of UK data center cost management at Turner & Townsend, said: “The data center industry continues to offer huge opportunities. As individuals and businesses, our reliance on data will grow through the growth of artificial intelligence and machine learning. Further acceleration. However, the other side of the coin is the challenges of delivery, including power supply, supply chain issues, skills shortages, and increased construction costs.”

Best believes the industry needs better collaboration and investment in solutions, particularly in electricity demand, to overcome these barriers and ensure the long-term sustainability of the industry.