Greenfield data centre construction costs have risen notably since last year, propelled by multiple factors, including supply chain limitations, inflationary trends, labour scarcities, and land availability challenges. Globally, they surged by over 6% year on year (YoY) compared to 2022. In Europe, the average construction costs for 2023 surged by 6.5% annually, reaching $9.1m per MW (€8.4m), as reported by Turner & Townsend’s latest findings. Zurich remained Europe’s most expensive market for new data centre development, followed by London and Frankfurt, positioning it as the second-costliest globally, following Tokyo. Across European jurisdictions, building costs range between £7m and £13m per MW of commissioned IT load. This includes land, the building shell, electrical systems, HVAC, mechanical and cooling systems, fire security systems, and the building fit-out, as detailed in the table below. 

Building costs vary mostly based on power density, redundancy, and scale. High-density spaces require additional cooling capacity, resulting in higher costs. Redundancy involves duplicating critical components such as backup generators, uninterruptible power supplies (UPS), power distribution units (PDUs), and cooling systems to mitigate downtime. As the level of redundancy architecture increases (referred to as N, N+1, N+2, 2N, and 2N+1), constructing costs rise. Hence, with redundant components being a major factor in Tier certifications, the costs of fitting out a data centre rise to achieve higher tier certification. According to Dgtl Infra, the cost of constructing and fitting out a Tier IV data centre can be 25% to 40% more than a Tier III data centre and double that of a Tier II data centre. 

Conversely, scale offers a cost advantage. Large-scale data centre developments benefit from greater purchasing power, resulting in more cost-effective procurement of electrical systems and HVAC components. Significant savings can also be realised through brownfield redevelopment projects. For instance, QTS Realty Trust has repurposed numerous existing real estate assets, reporting a 10% to 15% cost advantage from redeveloping these buildings. 

Exploding demand, combined with escalating energy expenses and construction costs, has caused a significant surge in average asking prices across European colocation markets. Since the onset of 2022, there has been an average uptick of 36% for 4 kW leases, 47% for 10 kW leases, and 51% for 100 kW leases. On average, across the major data centre hubs in Western Europe, they range between $427 and $460 per kW depending on location and power capacity required (4 kW, 10 kW, and 100 kW leases).

Looking ahead to 2024, we anticipate a continued rise in rents due to persistent high energy costs, escalating construction expenses transferred to clients, as well as the insatiable demand for data centre facilities amidst a shortage of available sites for new schemes. However, the anticipated price fluctuations are expected to be significantly less pronounced compared to the steep increases witnessed over the past 18 months. We anticipate asking rent to rise by 5% to 8% YoY in the next three years.

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