Continued growth of sector will increase pressure on input costs and availability of plant and equipment

In early 2025, Microsoft took a step back from data centre developments globally, which caused many development programmes to go on pause. Companies such as AWS and Google Cloud continued to drive growth in the UK but there was a setback to some planned construction. Toward the end of the year Microsoft announced significant investment plans for the UK in order to build its AI infrastructure in the region. This came as other providers such as Google, Nvidia and Open AI also announced large-scale new-build investment in the UK.

The start of 2026 has seen several developments that were ‘paused’ in 2025 come back online with further end-user engagement and progress with securing occupier lease agreements. Other large-scale developments have also been announced across the country, which is likely to put pressure on the contractor market, especially those experienced at delivering technically complex projects such as data centres. As well as new contractor entries to the data centre market from logistics and manufacturing and other sectors, we have also seen a shift toward a GC1/GC2 procurement approach, which has widened the pool and alleviated some of the pressure.

Geopolitical unrest remains high, with the conflict in the Middle East the latest in a long string of events causing nervousness around lead times and the availability and price of materials. Risk sharing is a ‘must’ for developers now as contractors are unwilling to take on as much risk as they have previously.

Data centre plant and equipment, such as generators, transformers and mechanical cooling equipment, have been falling above standard levels of inflation in recent years due to high demand and long lead times. We are also starting to see challenges with securing production slots for some equipment such as generators because of the ‘go’ button being hit on several projects at the same time.

Cost pressures for contractors and subcontractors generally across all sectors have arisen over the past year in the form of increases to National Insurance, National Minimum Wage and National Living Wage. This teamed with the fact that skilled MEP labour comes at a premium, with cable jointers, building management system (BMS) operatives and commissioning engineers demanding significantly higher £/hr rates than they did in the past, is further pushing input costs up in the sector.

In summary, the data centres sector continues to grow and demand is high due to developments restarting as well as new pipeline. Sector-specific input cost increases along with securing production slots for long lead plant and equipment are challenges for the hear and now, affecting construction costs and procurement strategies across the board.