TRENDS SHAPING THE DATA CENTER MARKET

The rising demand for data center services continues to have an impact on the construction industry and society alike. For the seventh year, Turner & Townsend, a global consultancy business, released its Data Centre Cost Index (DCCI) that discusses emerging trends in the market. Luke Bartolo, Managing Director Netherlands, discusses how the Data Center market in Europe will evolve in 2024.

Written by Pim Kokke

Every year, Turner & Townsend conducts a survey for their Data Centre Cost Index (DCCI). In their latest edition, 83 percent of respondents mentioned that data center construction has struggled to meet industry demand in 2023. It is one of the challenges in the market that Luke Bartolo, Managing Director Netherlands at Turner & Townsend, and his colleagues observe. “The surge in Artificial Intelligence (AI) and machine learning development and the increasing demand for data storage and therefore data centers, remains high. However, new and pending laws and regulations are putting pressure on regional markets, impacting the availability of space for (new) constructions and the willingness of authorities to even progress permit applications. Further, grid congestion in Europe is starting to take hold of the markets causing further delays as the prioritization of construction developments is hotly debated.”

Artificial Intelligence

The growth of AI and machine learning has been dominating news reels in recent months. The rising demand for AI services squarely puts the spotlight on data centers, and the need for more data storage. The Data Centre Thermal Management Market Analysis report of Omdia (2022) suggests that power demands for racks are soon expected to increase almost ten-fold. “People are starting to realize how data centers support our daily lives and almost all of our daily activities. The perception of what has been once referred to as the ‘black box’ is changing. In addition, we find an increase in both suppliers and customers asking us how to build and operate data centers with greater sustainability in mind, specifically the reuse of residual heat from data centers to reduce the reliance on traditional energy fuels.”

Supply chain

The European market is no exception when talking about the growth of data centers and the pressures on its supply chain. Challenges such as the shortage of qualified professionals has both an impact on the speed of delivery and the ability to operate such large, technical facilities. Bartolo: “As an example, in Ireland, you see pace in the development of new locations. Professionals and contractors with a lot of pre-existing sector experience are engaged to accelerate the projects. In this way, the supply chain remains rather small and is always stretched to cover multiple projects. Only recently has the market been open to engaging with other professionals and contractors with experience gained in other sectors such as nuclear, industrial or energy.”

Subsequently, the shortage of people and capacity leads to higher costs to build and operate. Moreover, the rising interest rates in Europe are challenging the financial markets which may influence further investments in the region and the business model of the industry. “You now see organizations shifting their attention to new locations outside of FLAPD* to improve their business model. For example, the Nordics and M3 (Madrid, Marseille, Milan) are growing but we also see a lot of developments in Warsaw, Istanbul and Berlin”, says Bartolo.

Project Management Consultancy

In order to manage the construction phase of new facilities, Bartolo sees one major trend that will influence the market for the next few years. “Organizations are stepping away from engaging a general contractor in a traditional sense and are preferring to buy out packages of work, and in doing so gain greater control over and ultimate trust in their supply chain. In certain circles this approach is known as Project Management Consultancy, an approach in which the client (or operator) strives for more flexibility and control over the project, to move forward at their own discretion and pace. We see this trend happening not only in the data center market but in other sectors where large construction projects are being executed.”

In summary, economic and market challenges have led data center operators to search for alternate development sites and employ alternative procurement strategies to maintain greater control over their developments, during planning and construction, to ultimately realize their projects against a backdrop of already challenging business cases. In the Data Centre Cost Index (2023) of Turner & Townsend, 79 percent of respondents believed that the data center sector is recession-proof, an increase on last year of eight percent. This suggests that despite the challenges, the data center market in Europe is and remains booming.

*Frankfurt, London, Amsterdam, Paris, Dublin

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