Data centre construction market in rival Frankfurt is ‘overheating’.
Brexit may be forcing banks to contemplate moving outside of London but the capital is set to continue to lead demand for data centres in Europe, despite ranking as the third most expensive city to build data centres in the world after New York and San Francisco.
According to the Data Centre Cost Index 2017 from leading professional services company, Turner & Townsend, demand for data centres in London is outstripping supply from contractors and has driven up construction costs by 4.1 percent.
The Index analyses input costs – including labour and materials – and compares the cost of both new build and technical fit out projects across 18 established data centre markets worldwide.
Foreign investment and the growth of cloud services providers are key factors fuelling the growth of data centres in London. In the rival city of Frankfurt, the construction market for data centres is classified as ‘overheating’ due to a high number of projects and intense competition for physical resources and labour driving prices up.
As well as being a major financial hub, Frankfurt benefits from a high density of network service providers, is home to the world’s largest internet exchange and is considered a gateway to eastern and central Europe. Ahead of Brexit, the city is seeing increased demand for data centre space.
The Index reveals the significant construction disparities that exist across Europe.
Amsterdam, Paris and Stockholm have new build data centre construction costs which are up to 10 percent lower than London.
A key construction trend throughout Europe – and one set to continue in 2018 – is the prominence of UK and Ireland-based contractors securing projects across mainland Europe, particularly where local data centre expertise is not available on a large scale.
Contractors delivering new build facilities in Frankfurt can expect to command margins of up to 15 percent, while average margins for new build in London are 6.5 percent.
Dan Ayley, Director, Hi-technology and manufacturing at Turner & Townsend said:
“Despite Brexit headwinds, London retains its title as Europe’s leading data centre hub with approximately double the space and usage requirements of rival Frankfurt. This is set to continue in 2018 as high construction costs for new build facilities in both cities reflect the buoyancy of these markets and growing labour shortages.
“Data is one of the world’s most valuable commodities and in European hubs, data centre demand is being driven by the rapid adoption of cloud services and the emergence of business models based around the Internet of Things. This in turn is increasing competition to provide space at a lower cost and investors, developers and operators need certainty that they are building at the most competitive price. Against this backdrop they must proactively review and benchmark cost trends to be able to assess opportunities at a regional and global level.”
New York and San Francisco are the most expensive places to build data centres in the world with construction costs in these cities as much as 25 percent higher than other established data centre markets.
As one of the fastest growing data centre markets in the world, Dublin was ranked as one of the most cost-effective locations to build, but cost inflation in 2018 is anticipated to rise to 8 percent. While tax incentives remain attractive to operators, the city’s shortage of available power continues to present construction challenges.