Why data centre construction is still growing but facing a slowdown

That’s the view of Dr Nicholas Fearnley, head of global construction at Oxford Economics, who was speaking at the Committee for European Construction Equipment (CECE) Summit in Brussels, Belgium, last week.

Dr. Fearnley said data construction data centre construction is heavily benefitting the non-residential construction segment.

Oxford Economics figures show that while the US remains the largest data centre construction market, a total of 469 projects are now underway in 78 different countries, with another 337 expected.

He noted that demand is being driven not just by artificial intelligence (AI) but also cloud computing services, which are prompting developers to build new capacity in countries such as India, Malaysia and across Europe.

However, the energy-intensive nature of data centres is creating local constraints. In Ireland, for example, about 20% of national electricity demand already comes from data centres, while in parts of Southeast Asia some facilities remain under-utilised because of insufficient power supply.

When asked by Construction Briefing whether these pressures could slow construction growth, Dr. Fearnley said he expected growth to continue albeit at a slower rate in the near term but challenges for the sector lie on the horizon.

“In terms of growth, we are seeing that it’s falling but it’s essentially a base effect that we’re building a lot more and it’s not growing at the same exponential rate,” he said.

“The rate of growth – at least at the global level – is slowing. I do think there’s going to be more growth coming over the near term and it is a very difficult sector to forecast 10 years out. But the constraints around electricity and water are going to be big challenges for the sector. There will be strong growth for the next few years but after that it is going to have to slow as we build the infrastructure to support them.”

Global market outlook

In a wider update, Dr Fearnley said construction activity is set for a rebound in Europe in residential building, non-residential building, and civil engineering.

“It’s really the civil engineering sector that is driving growth in Europe this year, including transportation and utilities. Building construction activity has remained weak. We do think building construction activity is going to come back stronger next year in Europe,” he said.

He also noted that a pullback in private sector investment in construction in the US and the Asia Pacific region following the introduction of the Trump administration’s Liberation Day tariffs has been less marked in Europe.

Meanwhile, Ukraine is set to see the fastest growth in construction activity in Europe, ahead of a reconstruction programme there. Oxford Economics’ forecast consider a range of different growth rates, depending on whether there is no ceasefire following Russia’s invasion of the country, a ceasefire that favours Russia, or one that favours the Ukrainian people. The latter is expected to bring the strongest level of growth, with western countries likely to be better placed to finance the rebuild than either Russia or Ukraine itself.

Why is construction productivity falling?

Dr Nicholas Fearnley

More generally, Dr. Fearnley noted that one slightly unexpected feature of today’s construction sector is falling labour productivity, which has gone backwards since 1997, when a construction worker was adding more economic value to the European Union than they are today.

“This is a challenge for the sector and goes against trends we have seen in other parts of the economy. It is not just a European challenge, it is a problem in pretty much all advanced economies. This is a struggle when you have labour shortages and you are getting less out of each worker. We think this is something the construction industry is going to be grappling with over the next five years,” he said.

Asked why productivity in construction is falling, Dr. Fearnley said the problem was widespread across advanced economies and had worsened over recent decades.

He pointed to the sector’s fragmentation as one of the main factors: “You get a lot of quite small players and it makes it difficult for learnings to be applied. Normally we see productivity growth come from technological innovation, but that dispersion doesn’t really happen in construction.”

A lack of diversity and limited exchange of ideas were also contributing factors, he added. “Fresh ideas drive innovation, and the construction industry really struggles with that. We’re making steps to improve it, but it remains a challenge.”