In September 2024, the UK government designated data centres as “critical national Infrastructure”1, solidifying the importance of this growing multi-billion-pound sector to the UK growth agenda.
Major investment in data centres
Classifying data centres as critical infrastructure, alongside water and energy, is expected to trigger a boost in infrastructure investment across the public and private sectors. This will stimulate construction activity and bring associated economic growth through boosts in employment and supply chains volumes.
The UK has seen recent examples of industry giants strengthening their data centre presence in the months leading up to this announcement. Amazon and Microsoft have separately announced significant investment over the next 3-5 years to build hyperscale data centres across the England, totalling £10.5bn2. Since the government announcement, Blackstone has also confirmed plans to invest £10bn into Europe’s biggest AI data centre located in Northumberland3.
Commercial considerations when embarking on a major data centre programme.
Data centre construction has its own commercial challenges. Client Investors and Developers must consider:
- Scope complexity & procurement - Mechanical and engineering services represent a significant portion of the works (60 to 70%) for data centres. Sophisticated electrical and cooling infrastructure, alongside advanced building management and security systems forms part of a complex programme of works. Developers should seek to leverage procurement and contracting strategies that enable early contractor involvement and collaboration.
- Inflationary pressures – Rising costs continue to impact the construction industry. Our latest Deloitte ‘Construction Cost & Workload Sentiment’ Survey4 suggests that mechanical and electrical costs are anticipated to rise 6% over the next 12 months (among the fastest rising across all trades). This requires keen focus on pricing and procurement strategies to mitigate financial risks and ensure project viability.
- Supply chain stability - Supply chain resilience pose a risk for major capital programmes that rely on unique or specialist skills. Developers should include securities (e.g. guarantees) in contracts to minimise disruption in the event of an insolvency. Collaboration with the supply chain, such as less stringent contracts and favourable payment terms, may also help prevent insolvencies.
- Market capability – An experienced supply chain and programme advisory team is critical to the successful delivery of a data centre. It is crucial to engage partners with a proven track record of delivering similar complex programmes.
- Power and utilities – Hyperscale data centres are being built outside of major cities due to their size. Suitable power and telecommunication networks, including for redundancy/backups for critical services, can be limited in such locations. This can mean significant upgrades to core infrastructure. Cost allowances for bringing these services to site should be considered during early feasibility planning.
- Handover – The breadth and complexity of scope associated with data centre construction means enhanced testing and commissioning is crucial. Developers should consider these requirements during the early commercial feasibility planning phase.
By approaching projects with a strong commercial mindset, stakeholders can better navigate the complexities of data centre construction. Equally, stakeholders can seek to capitalise on the significant opportunities presented by this sector.