Dan Ayley is global head of hi-tech and manufacturing. He has a strong track record in managing the delivery of large capital projects and programmes in the data centre sector and has authored our data centre cost index since its inception three years ago.
2019 has been another year of tremendous growth globally in both established and emerging data centre markets, with research firm Technavio forecasting annual growth of almost 16 percent over 2018.
All 32 global markets featured in our data centre cost index (DCCI) study are experiencing growth, with over 40 percent of markets considered hot.
Zurich retains its position as the most expensive data centre market, and one that has seen a lot of early stage data centre activity. New Jersey, US remains the second most expensive market, and Silicon Valley, California has overtaken Tokyo to take the third spot. Copenhagen is now just as expensive as London when building a data centre.
North Virginia, the world's busiest data centre market, retains the ninth spot on cost. Amsterdam retains position ten in the table and Paris overtakes Frankfurt to position eleven. Phoenix, US has overtaken Hong Kong on cost to take the number 16 slot.
Nairobi, Kenya has risen three places from last year's table to take position 20, indicating the spread of market activity across Sub-Saharan Africa. It's still more expensive to build a data centre in Nairobi than Johannesburg, South Africa, which remains in cost spot 25.
Shanghai, Beijing, Mumbai and Chennai (the cheapest in the table) remain in the bottom four positions on cost.
With growth comes inflation, only nine percent of our survey respondents feel that the current data centre construction market conditions have not caused price escalation in 2019, down from 16 percent in 2018. Though the results of our annual cost index show only marginal increases, and instances of decreases as a €/watt metric for new build construction due to increases in power density.
Mergers and acquisitions have continued, both announced – in the case of Digital Realty Trust and Interxion – and continued speculation around organisations such as CyrusOne.
Average power density requirements have increased by as much as 50 percent year-on-year and the deals are clearly getting bigger too, backed by both ambition and availability of funds to invest. Money is cheap and profits are plentiful for the leading technology firms driving cloud growth and adoption, and the investment funds are in for a piece of the action.
Data sovereignty is moving up the agenda, through EU data protection laws and similar acts being imposed or considered by other nation states such Switzerland and as far reaching as Kenya. In total, 71 percent of our survey respondents expect data sovereignty/data protection acts to increase demand for data centres.
Prospects throughout 2020 are equally buoyant – our 2019 data centre market survey reveals 90 percent expect data centre construction demand in 2020 to exceed 2019, up from 84 percent from 2018 predictions on 2019.
So the trend is clear, and consistent with the wider tech industry and global business as a whole – the big companies are getting bigger, competing on more fronts. That's whether globally in terms of buying into new regions, or business strategy – wholesale buying colo/exchange, or colo-exchange joint ventures being created to compete in wholesale or hyperscale (in the case of Equinix and GIC getting together).
But for how long can the “good times” last, are we looking at an industry that’s recession proof? Investment and growth trends suggest some feel that way, but opinion remains divided 50/50 from those that contributed to our study.
Logically, industry growth of this scale brings continued opportunity but requires more effort and resource. But despite this backdrop, only nine percent of our respondents believe the construction industry has been able to meet industry demand, down from 12 percent in 2018.
Parallel to ambition and growth, social awareness and the sustainable agenda is rising. Data centres already consume two percent of global electricity and our industry has a huge role to play in meeting both moral obligations and the increasing regulations to meet carbon goals. But still 90 percent of respondents feel that delivering either on time or on budget is more important than innovation.
With Power Usage Effectiveness (PUE) already in many cases industry leading, have we already met or are we fast approaching our innovation limit in this regard? How and where do we generate our electricity? Paying “green energy” tariffs is certainly a good start, but if we are to meet our carbon goals we need to consider further local power generation and the usage of standby generators in our designs.
In our poll, opinion is split 50:50 on whether or not continued technological advancements with solid state batteries combined with green energy sources will render generators obsolete.
Exponential growth of data requirements in all walks of life and all across the globe is fuelling data centre construction in all 32 featured markets. Each market faces varied challenges, including political and economic stressors, skills shortages and, in particular, concerns about power availability. In spite of this, more major deals are hotly anticipated and universal demand will continue to ramp up over the next 12 months.
To generate the results of DCCI 2019, our proprietary cost model was updated. The cost model individually assesses each of the six key capital cost headings: shell and core; equipment; construction labour; construction materials; preliminary costs/general conditions & general requirements; and margin/profit for each of the 32 markets featured. All costs are converted into a single currency, in this case USD, utilising the same foreign exchange rates as those used in our annual International construction market survey (ICMS).
Baseline model assumptions
A greenfield 30MW IT load data centre in the central US region was used as a baseline. It assumed a power density of 3,000W/m2 with a net lettable to gross floor ratio of 1.8.
Shell and core
Our network of regional offices provided parametric costs (per m2) for actual data centre shell and core construction expenses, where available.
Actual quoted equipment costs during 2019 have been applied and factored in as necessary. Additional costs per location are also applied for local sales tax/VAT, import duties and freight.
Our baseline model includes actual construction hours, factored in and categorised using the ICMS published hourly rates. A productivity assessment table was developed comparing each of the 32 markets for the impact of regulations, skills and cultural/religious variances. We have then applied a ratio of expatriate labour resources anticipated to be involved, resulting in a blended rate.
A material price index was developed using the results of our ICMS, weighted for relevance to data centre construction.
Preliminaries/general conditions and general requirements
The results of our ICMS were initially used, and then updated to reflect actual data centre tender returns during 2019, where possible.
As above, the results of our ICMS were initially used, and then updated to reflect actual data centre tender returns during 2019, again where possible.
The cost model does not include any client direct costs, land purchase costs, utility works, groundworks, site works, active IT equipment, fibre cabling to support office fit-outs or professional services fees.
We are confident that our DCCI will become a reliable industry benchmark for those involved in data centre construction. If you’d like to determine an estimated outturn cost for your specific project, or to contribute new market information to our model, please get in touch, we’d be delighted to hear from you.