Asia-Pacific data centre client teams become more hands-on to hit delivery targets
Demand for data centre storage across the Asia-Pacific region continues apace, creating challenges for clients as supply chains feel the strain. But the data centre construction industry can meet the unique challenges of a rapidly expanding market.
By Simon Kearney, Director and Ben McGeachie, Director.
The global pandemic was the greatest test the modern world has ever faced – and one that has continued to drive changes in how we live and work nearly three years on. When it comes to the data centre market, the sector continued to boom through COVID-19, while few other industries could say the same. Growth has come on the back of ever-increasing appetite for fast, secure access to personal and professional data storage.
Data centre investment across the Asia-Pacific (APAC) region has become especially buoyant. Throughout the market, growth is being led by hyperscale data centre end users and developers who are racing to fulfil demand.
This growth is creating an added constraint to the supply chain procurement capacity that is driving up costs, with APAC already showing average costs per watt increasing at a rate that outstrips other global regions. High energy, labour and material costs are being sustained through a combination of specific data centre demand and wider construction market forces. The ongoing impacts of COVID-19, particularly in China, have been felt keenly. As restrictions have eased, we’ve then seen a resurgence in the region’s activity as industries release pent-up investment.
Now in its sixth year, our data centre cost index (DCCI) has tracked these trends. It reveals that across the board there has been an average 15 percent uplift in local currency construction costs driven by market and supply chain turbulence. Within APAC, Tokyo and Singapore find themselves in the top five most expensive markets for data centre construction to build worldwide, at an average of USD$11.40 and USD$11.30 per watt, respectively. Seoul, Auckland and Jakarta sit not far behind.
The good news is that these kinds of pressures can incentivise innovation. We’re seeing encouraging signs from across investors and clients that are taking a proactive approach, adopting greater creativity and sophistication in development programmes. This came across strongly in a recent panel discussion with data centre leaders across APAC, which showed a growing acceptance of the need to engage proactively with the supply chain to drive down costs and meet demand.
Building supply chain services
The major trend is towards a more hands-on approach from clients and collaborative working to combat supply chain procurement pressures that should not be underplayed. The sector is currently operating alongside continued logistics disruptions, including port closures, competition for shipping and increased fuel costs.
Our DCCI research reveals that 78 percent of respondents report lead time for prices of major equipment have extended by 12 weeks or more. Getting close to suppliers is essential to navigating these hurdles and securing the best price. Diversification is an important trend to de-risk over-reliance on overstretched resources – with clients increasingly exploring alternate points of origin for the assembly of long-lead equipment to address time constraints.
This exploration also includes homing in on the role of specialists when it comes to contracting. The industry in APAC is having to become more confident in working with a wider pool of partners to get work delivered to strict timetables. In the long-run this can be a positive move which ultimately builds greater capacity and diversifies the skills base to deliver future projects.
Supporting new markets
The pressures around supply chain services are even more acute when we look at emerging markets in Asia, where we are seeing particularly strong construction activity in secondary, less saturated markets.
Countries such as Vietnam, Malaysia and the Philippines are entering into a new phase of development, with greater local demand for data storage system. In Australia, the sector is turning to hyperscale, with schemes underway or planned in Melbourne, Brisbane and Perth.
To make the most of the opportunities, clients are finding an even-greater need for proactivity.
They need to work with local partners in these newer markets to help them understand the construction conditions and how they can ensure consistent standards when it comes to health and safety, build quality, time and cost certainty.
Before entering the market, investors are looking at models which establish centres of excellence that can be used to oversee and manage operations, being direct and clear about expectations to encourage a race to the top on quality. Likewise investing in the education of the supply chain will help ensure a resilient and fit-for-purpose product in the long run.
These more mature and diversified delivery strategies can support the next stage of the industry’s evolution in APAC – which is to go for green growth.
Our research shows that opinions are mixed on the delivery of carbon emission improvements in the sector. 56 percent of our DCCI respondents believe their programmes do not yet have a clear plan in this area. Nevertheless, our recent panel discussion in APAC reveals that the sector is keenly aware of its net zero responsibilities and of the need to put firm plans in place as investors and end-users drive demand for greater sustainability efforts in the sector.
Increased sophistication in contracting will lend itself to meeting these demands, as clients take a stronger lead on setting sustainable design standards and bolting-in expertise to reduce both embodied carbon during construction alongside emissions from assets to operation.
The industry has an obligation to itself and its customers to be more transparent about its capabilities, what it can and can’t do and try to solve these challenges together.
Within APAC specifically, the availability of renewable and green energy and co2 production can be of huge benefit, while the move to more local supply chains can help to reduce emissions. Ultimately, operators need to map out clear route maps that identify how they will decarbonise in line with global climate goals.
What is clear from our work in the region, and from our recent panel discussion, is that leaders in the APAC data centre market are ready to invest in a positive way. Despite the multi-faceted challenges to address, our latest DCCI points to a sector that remains upbeat about its prospects. While headwinds are being seen, there is confidence across the market that the industry can remain resilient while managing the growing pressures of both financial and carbon costs.