London ranks among top ten costly cities for data centres
The latest annual report from Turner & Townsend highlights growing challenges in data centre construction, especially in regions facing limitations in power availability and supply chain capacity.
The report indicates that London's data centre market ranks among the top ten most expensive globally, reflecting high demand but also significant development barriers. The report analyses costs and sentiments across 50 international markets, revealing a trend of investment moving towards newer markets promising fewer delays and faster power connections, particularly for AI data centres.
AI data centres focus on computational power rather than latency, allowing them to be built in a wider range of locations unlike traditional data centres which need proximity to demand. The UK must therefore compete on cost, speed, construction time, and power availability to remain a competitive destination for data centre construction.
Responses from industry leaders reveal that 92% identify AI as a major influence on data centre operations over the next 3-5 years. Additionally, 80% reported delays in manufacturing or delivery of critical equipment due to the industry's capacity struggles. A significant 92% considered power availability to be more crucial than the location of new developments.
Lisa Duignan, Data Centres Sector Lead, Europe, at Turner & Townsend, stated, "The digital revolution and interest in how AI can support our professional and personal lives is booming, helping the data centre market remain one of the hottest areas of the global economy. Data centres are increasingly seen by governments as critical national infrastructure, and there is clearly a huge opportunity for clients - but growing challenges, not least power supply and labour shortages, need to be managed."
The report identifies Tokyo as the most expensive market for data centres at USD $14.3 per watt, followed by Singapore, Zurich, Silicon Valley, and New Jersey. Singapore emerged as the most power-constrained market, climbing to second place in the rankings. The top rankings include several mature markets known for industrial innovation, such as Zurich, Silicon Valley, and New Jersey, which are expected to maintain growth amid the AI and machine learning boom.
This index sees the inclusion of five new markets: Lagos, Helsinki, Lisbon, Cardiff, and Bordeaux. These new entries suggest a growing number of investment targets, albeit with higher initial costs due to limited supply chain capabilities, expected to stabilise over time. Lagos, for instance, requires significant imports of labour and materials, resulting in higher costs.
Scandinavian data centre pipelines remain strong, with colder climates and access to renewable energy counteracting typical cooling and net zero challenges. However, reliance on international supply chains and imported talent increases costs, placing Oslo, Copenhagen, and Stockholm in the top ten rankings. Auckland's ascension from 16th to joint 6th place is attributed to a restricted supply chain and skills migration to Australia.
London ranks joint 10th in the cost index at USD$11.2 per watt, indicating its potential as a key investment market, influenced by the UK government's recent classification of data centres as critical infrastructure.
Regarding new market investments, Turner & Townsend advises mitigating risks and avoiding costly delays by centralising delivery and leveraging both international expertise and local talent. The report advocates focusing on regions with existing complex technological construction experience, where skills from industries like life sciences and advanced manufacturing can be transferred more readily.
Duignan further commented, "Traditional data centres ideally need to be near the location of digital demand they serve, but there is more geographic freedom for AI data centres where latency is less of a concern. This means many clients are branching out into new markets for data centre construction. However, this isn't risk-free. While those locations may have access to less constrained power grids and avoid existing supply chain bottlenecks, this comes with programme challenges and risks associated with testing new supply chains for the first time."
"To make sure projects are sufficiently resourced and unlikely to encounter delays, skilled labour should be central to clients' project plans. International expertise can still be drawn on while local talent is built up, and this is best coordinated through centralised global or regional delivery of data centre programmes."
