The global surge in AI and machine learning development is fuelling a rapid expanse in the data center market – but this progress risks being hamstrung by power constraints and equipment delays, according to a new report
The annual Data Center Cost Index from global professional services company Turner & Townsend analyzes the current average cost per watt to build data centers in 50 global markets, and uses survey responses from 250 sector leaders to pinpoint trends across the industry.
Overall, 92% of those surveyed see AI as the technology that will have the most impact on data center operations in the next three to five years.
However, 80% report delays to manufacturing or delivery of critical equipment as industry capacity struggles to keep up with demand.
Another 92% say that power availability is now more important than the location of new schemes.
Supply chain capacity driving cost inflation
AI requires larger, more complex and power-hungry data centers to manage the intense technological demands, but the supply chain and national power grids are struggling to keep up.
The top of the cost index shows how costs are being impacted by constraints in high-performing markets, where demand is exceeding available power, the supply of skills and materials.
Tokyo, at US$14.3 per watt, is the most expensive market for the second year in a row – with labour shortages and new limits to working overtime continuing to put strain on delivery.
Meanwhile, Singapore is now the world’s most power-constrained data center market and has risen into second place in the rankings, at $US13.8 per watt, from fifth position last year.
The data center pipeline in Scandinavian markets remains strong. The colder climates and access to renewables counteract common challenges relating to cooling and net zero.
Yet high dependency on an international supply chain and imported talent has cost implications. Oslo, Copenhagen and Stockholm now stand at ninth and joint 10th respectively in the rankings.
Battle for talent to intensify
Competition for supply chain expertise is set to heat up over the next 24 months as data center developers move into the Scandinavian market and compete with established hyperscalers for resources.
Skills shortages are also partly behind Auckland’s rapid rise from 16th place in 2023 to joint sixth, as it sees a limited supply chain and some loss of skills to neighbouring Australia.
Joining Copenhagen and Stockholm in joint 10th in the rankings is London at US$11.2 per watt. The UK is set to be an increasingly important market as investment is spurred on by the British government’s recent classification of data centers as critical infrastructure.
Lisa Duignan, data centers sector lead, Europe, at Turner & Townsend, said: “The digital revolution and interest in how AI can support our professional and personal lives is booming, helping the data center market remain one of the hottest areas of the global economy.
“Data centers 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.
“Traditional data centers ideally need to be near the location of digital demand they serve, but there is more geographic freedom for AI data centers 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 program 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 labor 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 centralized global or regional delivery of data center programmes.”
