The ongoing fall out of the pandemic, the Chinese government’s continued use of lockdowns in response to further outbreaks of Covid and the Russian invasion of Ukraine, has led to ongoing problems with global supply chains.
As a result, suppliers and consumers across the European data centre industry are now facing some of the most serious challenges of the last 20 years.
This provides the context against which our latest survey on the current state and prospects for the European data centre industry was undertaken, capturing the views of over 3,000 senior datacentre professionals across Europe, including owners, operators, developers, consultants and end users.
Some 88% of our respondents stated that they had experienced supply chain issues in the past year, a proportion in line with the 87% recorded in our preceding survey. These disruptions continue to be felt the hardest amongst our build professional respondents who reported experiencing supply chain volatility over the period – with some 82% of our developer/investor respondents group expressing their assent in the strongest terms, up from 63% recorded six months ago. In addition, roughly 70% of our design engineering and construction group expressed the same degree of agreement in the strongest terms.
For the second survey in a row amongst our service providers, there is also near unanimity regarding this disruption – 97% stated that they had experienced such supply chain problems.
It is this supply chain disruption which is a major contributory factor, alongside related geopolitical issues, in impacting economic growth. It continues to pose some serious challenges to the wider construction sector and of course within that, those tasked with providing new technical real estate.
Whilst in our summer survey last year we noted some easing in the degree of challenge being faced in the sourcing of construction raw materials, for example – to some extent we have seen a reversal of this in the past six months. Our respondents have reported increased difficulties in getting hold of these materials, with prices rising from 42% to 44% in the case of steel and 38% for cement and concrete – up from 32% six months ago. In contrast our respondents report that there has been some minor easing in the sourcing of cladding and dry lining materials.
Supply and demand tenets dictate that shortages of a particular material will inevitably lead to a rise in price for that product. According to our survey, the associated costs with data centre builds – raw material unit and transportation costs, as well as construction labour costs – have all reportedly risen over the past six months. In the case of raw material unit and transportation costs, the number of participants reporting that trend has risen from around 75% to around 80%. In the case of labour costs, this proportion has jumped from 62% last summer to around three-quarters.
Unsurprisingly amongst our developer respondents, over 90% reported experiencing rising costs across all three of these metrics with universal agreement of higher raw material costs. Amongst our DEC respondents, around 88% have reported experience of rising raw material unit and transportation cost rises as well as construction labour costs – up from 80% six months ago.
Supply chain disruption impacting future data centre locations
Whilst geography remains a strong determinant for our survey participants when identifying new data centre credentials, around 54% report that if current supply chain difficulties remain, then it will significantly impact their decision-making regarding future locations for their data centres. This does represent a fall from the 60% recording the same in our preceding survey, but continues to be significant.
For the second survey in succession, it is our DEC respondents who were the most fervent in agreement, with some 92% expressing their agreement up from 85% six months ago. Service providers appear less concerned than others, with 54% in agreement, trending down from the 64% previously recorded.
Once again, end-user respondents expressed both the lowest level of agreement – just 39%, which is down on the 44% recorded in the summer survey – whilst also recording one of the highest levels of disagreement with 28%. Colocation operators were the most polar in their views, providing the highest levels of disagreement (34%), as well as a similar level of disagreement (33%), and just under a third adopting a neutral opinion.
Felxibility during a period of instability
The past couple of years have been extremely challenging for anyone involved in the industry, with reduced and unreliable supplies putting significant pressure on the sector. This is still being exacerbated by rising inflation and a global cost-of-living crisis across Europe and the UK.
Yet the demand for data centre development to support ongoing digitalisation continues unabated, and the industry is having to dig deep once again. At BCS, our advice to clients is to procure early, and not to source from a single supplier but go to the wider market. We also recommend assessing the possibility of using alternative products that may be easier to procure.
In some cases, we are also suggesting that existing data facilities are reviewed to see whether they can be upgraded or refurbished to provide a short- to medium-term fix. In short, agility, flexibility, expertise and pragmatism are increasingly at the heart of our projects.
