Data centre cost trends
New market opportunities influence cost rankings
Amid surging demand, there are signs of a shift towards new markets for data centre construction.
Our index places established locations in pole position when it comes to the most expensive places to build. Our top five locations: Tokyo, Zurich, Silicon Valley, New Jersey and Singapore remain unchanged from our 2022 survey, albeit in a different order. Tokyo has topped last year’s leader Zurich to take first place, with an average of $13.7/W.
Data centre cost index 2023 – index scores and US$ per Watt
However, when we dig deeper into the index, new trends are apparent. Globally, the overall average year-on-year cost increase across the index from 2022-2023 is six percent, in contrast to average tender price inflation (TPI) from 2022-2023 of four percent (a decrease in 2022 TPI of twelve percent). 2022 was an exceptionally volatile year due to global events such as the conflict in Ukraine, which further antagonised supply chains still suffering from pandemic-related material delays and price increases. While costs have continued to rise, they have not done so to the extent of the significant rises seen in 2022. Cost increases have been most significant in the less established data centre markets, such as Africa, parts of Asia and Latin America. Across the seven cities that experienced the greatest level of cost increase from 2022-2023; costs rose an average of 17 percent, with stand-outs, such as Cape Town, Tokyo, Johannesburg and Nairobi that saw a rise of between 18 and 22 percent. Emerging regional markets are climbing into the higher end of our index for the first time. Jakarta at $10.5/W has leapt up seven places to overtake London, Frankfurt and Chicago. Kuala Lumpur has risen six places, costing more than Oslo, Berlin and Sydney.
Johannesburg is up eight places and Nairobi up three – showing an acceleration in costs in key African markets as the data centre sector matures. Driven in part by investors looking for new opportunities in under-served markets and more economical land capacity, demand for data centre construction in Africa has been on an upwards trajectory for several years. Reflecting the growing profile of new markets, Riyadh in the Kingdom of Saudi Arabia (KSA) is a new entrant to the index with an average cost of $10/W. Investors are watching this market with interest as digital connectivity and investment rise across KSA to support its national building programme and expanding range of giga-projects. It is reasonable to predict that those markets of sub $8/W will continue to increase and narrow the gap. This is largely as a result of the continued trend of increased labour costs and the impact of the baseline cost for equipment and professional services. The index points to a clear narrowing of cost variation between traditional hubs and emerging ones – indicative of a data centre sector searching for faster and more efficient ways of delivering overall capacity. This search may in turn be slightly reducing the future inflationary pressure in the traditionally expensive regions. In our survey there was a marked 50:50 split between those anticipating that costs would increase, and those who thought they would stabilise in 2024.
50:50 split between those anticipating that costs would increase, and those who thought they would stabilise in 2024.
Charting the data centre boom
2023 marks the seventh year of our data centre cost index.
Over its history, the report has shown year-on-year cost inflation across all markets, as the industry has boomed on the back of ever greater demand for data storage. To illustrate this trajectory, we have included an analysis of cost movements across ten key hubs over the past five years, which shows a consistent story of rising costs across both primary and secondary markets.
Key markets - DCCI history 2019-2023
Primary markets from our earliest report have held firm, notably Silicon Valley, which has continued to be the pre-eminent base for global tech firms, and the expanding cluster of investment in North Virginia. London and Frankfurt have seen consistent increases sustained by their position as global financial hubs together with overall high-cost escalation in European construction markets. The big disrupters, however, have been those markets that bring access to new territories on the frontier for data demand. As a base for global corporates and a gateway to Asian markets overall, Singapore has established itself as a major hub for data centre development in the west Pacific. However, huge demand has put pressure on the island nation's finely-tuned construction supply chains. Rising concerns regarding greenhouse gas emissions and power consumption levels led to a moratorium on data centre construction being imposed by the Singaporean government in 2019. This was then followed by strict lockdowns throughout the COVID-19 pandemic, leading to a period of muted construction activity. The city region saw a spike in costs in 2022 as it emerged from the lockdowns and as the moratorium was lifted, allowing new data centre construction activity to accelerate once again, albeit only for projects with higher sustainability credentials. Our five-year trending data also highlights the exponential cost escalation in Jakarta, Indonesia, where construction pricing has risen at a faster rate than some established markets. Digitalisation and demand for data services has risen across Indonesia on the back of a fast-growing economy. It has also benefitted from investment shifts away from other Asia-Pacific markets, such as Singapore while the moratorium was in place.
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