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Average construction cost increase of 4.9% across Asia Pacific key markets
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Mature markets dominate data centre land, construction cost indexes
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Data centre development activity across the region remains “significantly elevated”
Japan has been named the most expensive market for data centre construction while Singapore has topped the rankings for the most expensive land costs in Asia Pacific, according to a new report.
Mature markets dominated the top five positions for both the Regional Construction Cost Index and the Regional Land Cost Index included in Cushman & Wakefield’s inaugural Data Centre Construction Cost Guide.
Report author and Head of Asia Pacific Data Centre Construction, Project Development Services, James B. Normandale said:
“The market is facing some of the highest development rates in data centre market history. This is the result of persistent – although improved – supply chain disruption and construction market inflation, as well as higher capital lending rates across most markets within Asia Pacific. Despite the increased costs, development activity across the region remains significantly elevated as the sector continues to grow in response to secular trends, industry incentives, regulatory relaxation, and interest from investors who see opportunity in the disparity between future population needs and existing IT capacity.”
Based on a medium specification, 10-50MW data centre build (refer p19 of report).
Demand and domestic pressures influence land cost
Singapore’s limited land supply and government restrictions on data centre development saw the city-state top South Korea, Hong Kong China, Japan and mainland China for the most expensive market for land cost. The Regional Land Cost Index was calculated based on suburban industrial land (medium range) rather than central business district (high range) or industrial outskirts (low range) and based on the average cost of key cities within a market. Among a comparison of cities (see Figure 3), Singapore recorded the top price of USD11,573 per square metre (sqm), above Seoul (USD10,525) and Busan (USD8,865).
Based on suburban industrial land and averaged across key cities within a market (refer p15 of report).
Development costs elevated overall
The average construction cost increase on 2022 was 4.9% across Asia Pacific. Singapore recorded the greatest increase (8%), while Australian and New Zealand recorded the smallest increase (3.5%).
Based on suburban industrial land (medium range) where available (refer p15).
Key Trends Impacting the Data Centre Sector
- Power, Location & Management
The rise of AI and ML, while still in its infancy, is expected to drive substantial changes within the data centre sector. These technologies are increasing power consumption, rack loading requirements, and overall site capacity. Unlike traditional data centres, AI data centres for remote learning can be built between 450km and 1,000km from established data centre locations using existing low-latency infrastructure. While this may help to relieve pressure on land and power in densely populated areas, it could create labour and supply chain challenges.
- Environmental, Social & Governance (ESG)
There is a growing emphasis on holistic performance measurement within the sector, encompassing financial performance, ethical conduct, societal contributions, and environmental responsibility. Data centre operators are experimenting with sustainable power and zero-carbon electricity options, resulting in operational improvements and cost savings. The adoption of AI-driven software for data centre operations has started to demonstrate improvements in Power Usage Effectiveness (PUE) ratios.
- Strategic Sourcing & Supply Chain
Though improved, supply chain disruption driven by geopolitical uncertainty and economic unpredictability continues to impact costs. This trend is expected to persist into 2024 and has prompted the sector to adopt more conservative approaches to material and resource planning, such as multi-vendor supplier strategies.
“The data centre sector in Asia Pacific is in a dynamic phase as it undergoes further growth and innovation. The colocation market size was reported to be USD25.5 billion in 2022 and it is expected to reach USD51.8 billion by 2028 – a Compound Annual Growth Rate of 12.5%. Hyperscale cloud revenue is expected to grow at 19% CAGR through now and 2028. Investors who stay abreast of developments in the AI and ML space will be well-placed to capitalize on these growth opportunities,” said Mr. Normandale.
Head of Data Centre, Cushman & Wakefield Korea, John Pritchard said:
“Data Centres have distinct construction requirements compared to other assets. The construction period can be elongated in some circumstances, making it difficult for a single construction company to carry out multiple projects simultaneously. Only a few major construction companies entered the data centre construction market in the early stages of business formation. Additionally, rising raw material prices and labor costs have significantly increased the average unit price of construction, resulting in a steady increase in the cost of data centre construction despite the increasing number of new entrants to the market.”
About the Asia Pacific Data Centre Construction Cost Guide 2023
The guide tracks 37 key data centre locations across Asia Pacific with a comprehensive breakdown of costs covering land acquisition, advanced land clearance and demolition works, base build and fit-out construction costs. It offers a comprehensive analysis of the Asia Pacific data centre landscape, including key trends that are shaping the region's data centre sector. This is the first year that Cushman & Wakefield has published its data centre development cost data. Read the Asia Pacific Data Centre Construction Cost Guide here.
