Data centre construction challenges and the rise of modular solutions

With rapidly increasing demand for artificial intelligence (AI), cloud services and digital infrastructure, data centres are becoming a growing asset class for both debt and equity investors. Many real estate investment experts also place data centre investment in Australia and Southeast Asia at the forefront of investment opportunity, given the digital economy's unprecedented growth across the region.

At the same time, the industry is facing several construction challenges alongside increasing pressure to improve energy efficiency. This is driving greater adoption of modular (off-site) construction and a shift toward modern methods of construction.

Key challenges in data centre construction

Delivering a successful data centre project presents numerous construction, regulatory and operational challenges. While rising construction costs and delays are often the most notable issues, developers must also address others challenges, such as:

• the ability to access power in areas of constrained grids – many developers are exploring alternative power sources and renewable energy to keep projects on track. With rising AI usage expected to increase power requirements for data centres by 150-200%, reliable energy supply is critical
• land availability and planning regulation are growing areas of concern – regulatory bodies take considerable time to issue approvals, with opposition parties to data centre developments slowing down construction
• skilled labour shortages – particularly in areas of technical expertise, data centre related engineers and project management
• long lead times – data centre construction relies on highly specialised components leading to long lead times and further project delay. Temperature control mechanics are particularly challenging though emerging technologies are offering more viable solutions and greater sustainability regarding power usage
• increased regulation comes with execution risks – with greater government oversight on how and where data centres can be built, developers need experienced advisers to push through the regulatory matrix and to comply with sustainability legislation coming into force.

Modular data centres as a commercial response

While conventional on-site construction is common, modular data centres are increasing in scope and development.

These data centres are constructed using prefabricated modules that include the building structure and systems such as the electrical, plumbing and cooling. While many data centres can be built entirely off-site in factory and controlled environments, some can adopt a hybrid approach, combining select pre-built modules with an on-site development. This versatility and flexibility allow developers to overcome some of the challenges mentioned above.

Advantages of modular construction for data centres

• Reduced delays and resource use – designing, building and testing modules completed in controlled environments can reduce delays due to severe weather conditions, labour shortages and other factors that typically cause delay with conventional on-site building. This off-site approach also requires fewer resources and uses less energy in the build process.
• Faster project delivery – modular construction is quicker to complete than traditional on-site development. With surging demand for AI and digital infrastructure, in-factory (off-site) construction adds significant efficiencies.
• Incremental growth with additional modules allows for staged scalability – modular designs allow developers to start with a base configuration and expand with additional add-on modular units. This staged scalability is a significant advantage, particularly where standardised power and cooling mechanisms can be more easily controlled in a prefabricated environment.
• Greater cost predictability – modular construction offers more predictable costs and better budget control. Faster and more definitive project completion also allows developers to lock in power purchase agreements more efficiently in the building cycle.
• Earlier commissioning and better energy alignment – off-site construction enables earlier commissioning and better alignment between renewable energy provision and construction milestones, where renewable sources are available. That is, the greater certainty on build times aligns with tapping into renewable power linkages.

The increasing use of modular construction with data centre development is having a material impact on the overall energy strategy and usage around the world. By enabling faster, more reliable project delivery with improved technologies, modular construction supports the integration of cheaper renewable power sources and greater overall sustainability. Given these benefits, modular construction is likely to remain a key approach to building modern data centres.

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