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The landscape surrounding data centers is undergoing a significant transformation, driven by the widespread adoption of Generative AI (GenAI). Historically, the main challenges for data centers have often centered around the increasing power demand and the need to secure power infrastructure. However, in recent years, attention is increasingly being drawn to the trend in construction costs as an additional key concern.

In this context, the latest survey published by Turner & Townsend compared data center construction costs across major global cities, highlighting that Japanese cities exhibit a remarkably high cost level. Tokyo, in particular, is noted for having one of the highest construction costs per watt globally, which distinctly underscores the unique characteristics of the Japanese market.

As the demand for infrastructure supporting Generative AI expands, data center construction costs are becoming an element that can no longer be ignored when making future investment decisions.

Why Construction Costs Are High

The survey points to several factors contributing to the high level of data center construction costs in Japan. One major driver is the increased sophistication of facility requirements necessary to support GenAI. To accommodate high-density server deployments, the specifications for power supply equipment and cooling systems must be elevated, consequently driving up the overall construction expenditure.

Furthermore, the difficulty in securing skilled personnel who specialize in crucial areas such as power, air conditioning (HVAC), and IT equipment is cited as another factor pushing costs upward. Compounded by a structure that is highly sensitive to procurement of materials from overseas and fluctuations in foreign exchange rates, these complex factors are believed to be reflected in Japan’s high construction cost levels.

Key Trends to Watch

Given the continued growth of the Generative AI market, data center demand is expected to remain robust. Consequently, construction costs are not anticipated to drop sharply in the short term; rather, they are likely to remain at a high level.

In response to this situation, however, there are emerging efforts to optimize costs through innovations in construction methods and project management. Construction costs are poised to become an even more critical consideration—alongside power availability and location—in the future.

The nature of the infrastructure supporting data centers will continue to evolve in the age of Generative AI. Within this dynamic environment, viewing market trends through the lens of construction costs offers a vital piece of information for understanding the future trajectory of the data center industry.