Over the last five years, data centres have become an increasingly critical infrastructure worldwide. The Middle East is emerging as a data centre powerhouse with investments into AI, the Internet of Things (IoT), smart-cities, e-governance and diversified economies as well as investments from tech giants like Google, Oracle and Microsoft.

Whilst regions like North America and Europe have more established infrastructures and larger market sizes, the Middle East has plans to close this gap. The Gulf Corporation Council (GCC) region is experiencing a rapid expansion in digital infrastructure, with their data centre market expected to double by 2030.

However, building data centre facilities comes with a particular set of challenges, and doing so in the GCC has its own unique additions. This article will summarise some of the challenges currently being faced by developers and governments in the GCC and how these are being addressed.

Site Selection and Construction

Building a data centre involves balancing environmental, logistical, and technical factors:

Land

There is an abundance of available land in the UAE, much of which is state-owned. This allows for easier acquisition of land use rights compared to many other jurisdictions, where private ownership can complicate transactions. However, challenges can arise in evidencing land ownership or long-term rights, as documentation can be less standardised than in more established property markets. Verifying titles or lease agreements may require extensive liaison with local authorities, adding complexity despite the overall ease of access.

Water Availability

By nature, data centres produce large amounts of heat. The GCC's unique arid climate means that robust cooling systems must be in place to maintain optimal operations, requiring a significant amount of water. Whilst desalinated water is abundant in the GCC, this is energy-extensive to produce, and with increasing pressure to design energy-efficient data centres, companies are adopting water-efficient cooling technologies, such as air cooling and liquid cooling systems.

Regional developers are adopting innovative cooling systems such as adiabatic-free cooling chillers and exploring full-scale cooling in a new facility to optimise energy usage and minimise power consumption.

Reliable Power Supply

Data centres require a reliable, smooth power supply. Even a brief power outage can result in significant downtime, affecting service availability, and resulting in data loss or corruption, particularly if systems are not properly shut down. To mitigate this risk, larger data centres tend to use multiple power feeds to switch between sources during power outages or maintenance.

There is an increasing focus on powering DCs through renewable energy sources. These alone are challenging for continuous, smooth power requirements given their intermittent nature. Energy storage and backup systems are essential but can increase costs and complexity. The GCC region offers significant advantages with abundant solar resources, strong government investment in renewable infrastructure and rapidly developing energy storage capabilities.

Planning controls in the GCC tend to be less stringent than their European counterparts, meaning there is often less red tape, lower costs and quicker approvals for ambitious renewables projects. Flexible zoning allows developers to secure bigger, more affordable plots, while relaxed infrastructure regulations support high-density computing.

The UAE and KSA, are recognised for their supportive regulatory environments, which encourage technological innovation and infrastructure growth. Masdar's new project is a testament to this – a 5.2GW solar PV and 16GWh battery storage project in Abu Dhabi, UAE. The project will be designed to enable the 'round-the-clock' day and night dispatch of 1GW of renewable energy to the grid, illustrating the current opportunities in the UAE given that the exponential increase in the size of data centres will require significant amounts of renewable energy.

High-Speed Connectivity

Data centres require robust fibre-optic connectivity to handle vast traffic volumes. The GCC benefits from a strategic geographic location that connects major global subsea cable routes between Asia, Europe and Africa, providing robust international bandwidth and low-latency connections.

Key landing stations in the UAE and Oman make these locations particularly attractive for hyperscale data centres. The difficulty may be finding a site large enough for a data centre which is also in close proximity to urban areas. Remote sites are likely to incur additional costs to ensure connectivity.

Construction Challenges

Rising Costs

Tender prices for data centres are expected to rise at a constant rate in the coming years. The Data Centre Cost Index found that the overall year-on-year cost increase across the 2024 index is 9%, compared to 6% in 2024. It is worth noting that the 2024 publication does not include the design changes and subsequent costs of liquid cooling technologies, and so it is likely that 2025 will be impacted by this, as companies continue to find innovative solutions.

Volatility in supply chains leads to delays, impacting the overall cost of materials and the project timeline. The cost of steel, for example, can fluctuate widely, making budgeting a challenge. Overall, global demand is consistently outstripping the capability of supply chains and regions to deliver, which is pushing prices up, particularly in markets with limited labour and contractor pools.

Skilled Workforce

The GCC faces a mismatch between the workforce's current skills and the specialised expertise needed for data centre construction. To address this, developers are setting up centralised Program Management Offices (PMOs) to import global expertise while the government is working to foster local talent through upskilling initiatives.

Legal Considerations

Data sovereignty and regulatory compliance

Navigating the varying regulations across the GCC can be complex:

  • Each GCC country has its own unique data protection laws, and enforce different data localisation laws, making compliance challenging.
  • GCC countries have stringent national cybersecurity policies, requiring data centres to implement robust security measures, continuous monitoring and compliance audits.
  • Artificial intelligence, the Internet of Things and cloud data regulations are still evolving, leading to uncertainties in ownership, governance and compliance requirements.

Data centre operators must stay informed about local regulations and adapt their operations accordingly.

Financing Considerations

No uniform approach has been taken with regards to financing data centres. It is critical that investors understand the type of data centre asset (e.g. hyperscale, colocation), the stage of the lifecycle (e.g. greenfield, brownfield) and where the value lies (e.g. in its contracts for services with its customers rather than a land-based asset).

Hybrid approaches are often taken as to the financing of data centres which borrow from limited-recourse project financing principles, real estate finance and leveraged financing structures. Typically, finance is often in the form of traditional real estate finance in the early stages, or equity financing by private equity firms, infrastructure funds, or large technology companies, with debt financing being used on a project basis once the business is operational or major customers have been secured.

If developers consider the likelihood of expansion from the outset, then accordion features can be used to place developers in a better position to increase capacity without amending the legal documentation.

Increasingly, portfolio financing is being used for data centres. This approach offers diversification and reduces risk due to the pooling together of multiple assets, which attracts investors with a lower risk appetite. Economies of scale lower borrowing costs, while flexible structures support expansion and upgrades. Although, it is important to note that portfolio financings tend to have a more limited security package when compared with real estate financing.

Sustainability and Power Supply

Environmental, Social, and Governance (ESG)

As ESG gains importance in attracting investments, GCC countries are focusing on sustainable practices for energy-intensive data centres. The International Energy Agency (IEA) warns that global data centres could consume over 1,000 TWh by 2026, necessitating innovative energy strategies in the region.

Renewable Energy Initiatives

The GCC countries are actively promoting the use of renewable energy and the implementation of energy-efficient technologies through various government incentives. These initiatives are part of broader strategies to diversify economies and reduce dependence on fossil fuels.

While newer and more energy-efficient technologies are available, they are not easily retrofitted into existing facilities. The GCC has an advantage here in that it is building out its capabilities at a time when renewable energy technologies are becoming more commercially available and sufficiently reliable to power data centres as well as being located in an environment with abundant solar resources. Large-scale solar farms can provide a substantial portion of the energy needed by data centres, contributing to sustainability goals.

Small Modular Reactors (SMRs) are an innovative solution being considered for data centres. SMRs offer a scalable and potentially cost-effective way to generate electricity, with the added benefit of a smaller physical footprint compared to traditional nuclear power plants. Again, the GCC may leap-frog ahead here as it is not caught up in prohibitions on use of nuclear or strict local zoning requirements and has more space around facilities to accommodate on-site SMRs.

Strategic Trends in GCC Data Centres

Government Support and Visionary Leadership

The GCC governments are spearheading efforts to position the region as a global data centre hub. Projects like Saudi Arabia's NEOM and the UAE's AI and smart city initiatives are creating demand for cutting-edge infrastructure. Furthermore, evolving regulatory frameworks, such as the UAE's AI regulation and revamped telecom policies, are fostering a permissive environment for the industry.

Public-Private Partnerships (PPPs)

Collaboration between governments, tech companies, and industry stakeholders is central to the GCC's data centre growth. Sovereign wealth funds and state-owned enterprises provide a solid foundation for public-private initiatives, enabling knowledge sharing, resource pooling, and innovation. These partnerships are instrumental in funding large-scale projects and localising foreign data centre technologies.

Focus on Localisation and Talent Development

While attracting international expertise, the GCC is also investing in localising its workforce to ensure long-term growth. Upskilling programs, aligned with rapid technological advancements, will play a crucial role in bridging skill gaps.

What's next?

The GCC's data centre industry is undergoing rapid transformation, driven by visionary leadership, strategic investments, and innovative technologies. As governments, private investors, and technology providers collaborate, the region is overcoming challenges related to infrastructure, sustainability, and talent acquisition and presents opportunities for growth and innovation.

As collaboration and partnership continues between the public and private sectors, the region will be well set to develop cutting-edge infrastructure and provide a suitable location and business environment.

For more information, speak to Jonathan Brufal, Jocelyn Paulley or any member of our team.