According to a report by Moody’s, the costs of key components used in data centres are expected to rise further as global supply constraints persist.
The report indicated that companies within the data centre value chain are either modifying their existing operations or investing in new production capacities to address the surging demand. However, until this new capacity is integrated into the supply chain, the persistent high demand will continue to elevate prices.
Key components such as mechanical cooling systems, electrical equipment, semiconductors, and computing devices are experiencing notable cost increases. This situation is leading developers and landlords to transfer these escalating costs onto tenants through higher lease rates. With vacancy rates at historic lows in most markets, tenants are absorbing these increased expenses, which in turn raises operational costs.
The report also forecasted that demand for data centres will intensify by 2025, driven by rapid advancements in artificial intelligence (AI), cloud computing, and data storage services. The report mentions that new colocation data centres are being established to serve small and medium-sized tenants who typically incur higher lease rates on a per kilowatt per month basis. While some markets may see a temporary rise in vacancy rates as this new colocation capacity becomes available, long-term supply constraints are expected to keep vacancy rates low.
To meet this growing demand, developers are taking on more debt for constructing and upgrading data centres. Major tech companies like Microsoft, AWS, Google, Meta, and Oracle are rapidly expanding their infrastructure globally, including in emerging markets. This expansion requires substantial capital, often sourced through equity, bank loans, and corporate or securitised debt.
As per the report, as developers engage in accelerated construction cycles, their financial leverage is likely to remain high in the short term. Revenue from these data centres will help mitigate costs but will only be realised once the facilities become operational and accessible to tenants. This delay in revenue generation is projected to temporarily weaken financial metrics; however, stabilisation is expected over time.
Further, the rising costs of data centre equipment and semiconductors highlight the ongoing challenges faced by the industry in meeting increasing demand. Until supply issues are resolved, both companies and tenants will continue to feel the effects of these heightened costs.
