Tokyo and Singapore the world’s most expensive cities for new data centers

In an international benchmark of the world’s most expensive cities to build new centers, Tokyo and Singapore have emerged at the very top. Conducted by global project management consultancy Turner & Townsend, the study confirms the booming interest and investments in the sector.

The two Asian cities spearhead the Data Center Cost Index from Turner & Townsend, ahead of several other major economic centers. Tokyo was already at the top of the list as the most expensive market since last year, but Singapore, now in second place, has risen from the fifth position last year.

Recent growth in the data center sector has been fueled by the widespread integration of digital tools into everyday life around the world. More digital technology usage in turn translates into more data storage requirements.

AI, advanced analytics and cloud computing have been a major factor in that explosive growth in data storage. In fact, a previous study found that around 20% of all data center storage capacity around the world is used for AI-related technology.

Generative AI, in particular, has been a major factor in the growing need for localized data centers across Southeast and Southern Asia. The post-pandemic increase in work-from-home arrangements is also a factor, as are the growth of 5G and at-home digital entertainment.

“Asia’s data center construction market is growing rapidly due to the adoption of digital technologies, AI, and cloud computing, particularly in tier 2 and 3 cities across Southeast and Southern Asia,” said Arunava Parial, director at Turner & Townsend.

There is a notable trend of higher density data centers with more localized locations. Markets like Beijing, Shanghai, Singapore, and Hong Kong have been seeing a rise in edge data centers, which are more localized and closer to the end-user.

The price tags on new data center construction has been rising and is expected to continue getting more expensive. Around 78% of industry respondents to the survey by Turner & Townsend said that they believe the tender and bid prices for data center construction has increased by at least 5% since last year.

Looking forward, nearly half of the respondents said they expect prices will increase by up to 15% in the next year, with another 12% saying they think prices will increase by 15% or more. “Despite rising costs, the data center market remains optimistic, with 80% of respondents believing it to be ‘recession proof,” said Lisa Duignan, data center lead at Turner & Townsend.

Challenges ahead

While the growth in the sector may paint a rosy picture, there are also significant challenges for the companies looking to meet the expanding demand. For example, a whopping 92% of respondents said that power availability is a greater deciding factor than location when planning new projects.

The consensus among the respondents is that countries around the world need to invest more in upgrading their grid infrastructure. But these upgrades might take too long, with the growth in data center construction quickly outpacing the infrastructure needed to run them.

Cybersecurity is another major challenge, as it is in the many interconnected technology sectors. Cyberattacks are on the rise globally, with one report showing the number of data breach victims has risen dramatically, with one recent case alone affecting around 6 million people.