A shortfall in capacity
Intense demand is driving up prices but a shortage of general contractors (GCs) poses a greater risk.
Given the rapid expansion of data centre capacity in development, it is unsurprising that respondents expect every construction material and infrastructure component to increase in price in the coming year.
Some of the biggest price increases are expected for infrastructure components related to power and cooling. On average, respondents expect UPS equipment to increase 3% in price, for example, and they anticipate a 2.2% increase for generators (Figure 7).
The growing price of this long-lead-time equipment reflects high demand and limited supply. But there are some regulatory effects as well. The EU’s latest update to its F-Gas Regulation, for example, tightens restrictions on sulphur hexafluoride, a potent greenhouse gas used in switchgear, heightening demand for compliant equipment.
And the UK government’s 3% increase in businesses’ National Insurance contributions and historic increases in wages tied to collective bargaining agreements has prompted some suppliers to raise their prices across Europe. As a result, our respondents’ expected price rises are optimistic.
Figure 7. All equipment prices are expected to grow in 2025
How do you expect the price of the following infrastructure components to change in 2025, compared with 2024? (average response)
These increases are driving up the capital expenditure (CapEx) requirements of new data centre builds, explains Timo Pohjanpalo, Co-founder of Finnish data centre developer Hyperco: “Given that capital equipment poses such a large share of data centre CapEx, those price increases drive up the overall cost quite a bit,” he explains.
Lead times for liquid cooling equipment, such as cooling distribution units, are currently under control, as data centre occupants and operators are still evaluating their designs. But that could soon change when a standard design emerges, says Baylis.
“We can’t lock in capacity until we confirm our customers’ specifications,” he explains. “But as soon as someone makes a decision on the design, there’s a real risk that everyone will try to buy the same equipment at the same time.
“If we’re not careful, we could create a self-made bottleneck.”
The risk of insolvency is highest at times of peak demand, says Byrne. “The danger is that a company takes on one or two more jobs than it should. And if one or two jobs go pear-shaped, that can have a horrendous impact on a company that's turning over £50m or £100m.”
Paying the cost of a labour shortage
Perhaps the greatest constraint on the data centre supply chain is on skilled labour. “Both on-site and off-site, every link in the supply chain needs people, whether you're erecting steel or white walls, pulling cables or installing generators,” explains Byrne. “But there's a dearth of talent across the whole supply chain.”
This not only inflates prices, Byrne adds, it also jeopardises delivery – potentially more damaging to a developer than a price hike. “Such is the demand that engineering technicians and engineers that support the back end of the commissioning process are becoming harder to lock in,” he says. “If you miss your slot, it can cause no end of pain.”
For operators, the most glaring supply chain constraint is for general contractors (GCs). Here, supply simply hasn’t kept up with demand. “Construction can be a slow-moving industry and it takes a while to build capacity or transfer it from another sector,” says Baylis. “As the market evolves, capacity will grow.”
The data centre sector is in particular need of GCs specialising in mechanical and electrical construction, he adds, but the European market has traditionally been dominated by civil or structural GCs.
Adding to developers’ worries are concerns about the financial sustainability of the few GCs capable of delivering data centres at scale. The collapse of UK construction giant ISG in September 2024 was a wake-up call for the industry.
The risk of insolvency is highest at times of peak demand, says Byrne. “The danger is that a company takes on one or two more jobs than it should. And if one or two jobs go pear-shaped, that can have a horrendous impact on a company that's turning over £50m or £100m.”
In some cases, these concerns are reshaping the relationship between developers, their GCs and their subcontractors, says Lamb at arch.law. “For the first time in a long time, and unusually for the UK, employers are looking at contractual mechanisms to protect against GC insolvency and to minimise the impact of sub-contractor engagement and disruption to construction,” she says. “We’re also seeing this working the other way, with M&E [mechanical and electrical] subcontractors wanting to work directly for the employer and ‘by-pass’ a GC.”
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