17 March 2025
Generative AI Driving Data Centre Construction Boom
Growing demand for cloud capacity, largely driven by the need to power increasing artificial intelligence (AI) use, is fuelling a data centre construction boom that will see the global tally of facilities grow substantially in the next few years.
According to a survey of data centre professionals, the average number of facilities operated by the predominantly US-domiciled respondents is expected to grow from 14 to 22 over the next three years, an increase of 57%.
Construction industry consultants also believe data centre demand across the US, Europe, and the Asia-Pacific region will be a key driver of activity throughout 2025.
The US currently hosts the most data centres globally, and the value of new data centre projects is projected to be around USD160 billion, representing a huge volume of insured value for construction (re)insurers.
As national power grids struggle to meet the demands of data centres, the sector is increasingly exploring alternative energy sources to address power needs under greater regulatory and investor scrutiny.
Renewable energy’s growing role in data centre development
As national power grids struggle to meet the demands of data centres, the sector is increasingly exploring alternative energy sources to address power needs under greater regulatory and investor scrutiny.
As a consequence, power purchase agreements (PPAs), where data companies invest in renewable energy generation projects and can secure a proportion of the output of those facilities to cover some or all of their energy needs, are growing in popularity.
With investors increasingly offering preferential deals for more environmentally-friendly projects, there is likely to be increasing integration between the data centre and renewable energy sectors in future — from deals involving the construction of on-site facilities, to securing off-take from adjacent power plants, or purchasing agreed limits of ‘clean power’ from suppliers’ broader energy portfolios.
The location of new data centres is also likely to shift as current hubs in Amsterdam, Frankfurt, London, Singapore and Dublin face constraints in terms of both existing power capacity and available land for developing data centres and renewable energy facilities.
Countries in the Asia-Pacific region, including Malaysia and Indonesia, are becoming increasingly important as potential relocation options.
Changing risk profile
Insurers' main concerns for completed data centres involve fire and water escape. A survey revealed that to meet cooling needs, half of respondents expect to adopt liquid cooling within the next two years, altering water risk profiles. Additionally, the trend of integrating on-site or adjacent renewable energy sources raises concerns about fire risks associated with solar PV systems and battery energy storage.
Like any construction project, data centres may involve several different contractors for the build and fit-out, which can further complicate these already complex engineering requirements. The significant fit-out phase that follows initial construction, including installation of high-value cooling systems, power cabling and substations, can cost multiples of the shell and core construction cost. This is increasingly a feature and identified development risk of hyperscale data centre construction, where multiple phases of ever-increasing MW capacity are being constructed on a fast-track basis to meet demand.
Mixing construction and operational business activity creates a complex mix of risks which need to be reflected not only in the insurance programme but in the contract drafting as well. First party risks can become third party risks and property insurers vary in their appetite to absorb the increased exposure brought about by construction activity.
Phased handovers are a common feature of data centres, as they are often built in multiple stages, with each phase having several tranches which are developed concurrently, but with different start and finish times. This therefore requires a particular focus to assess how this may impact the delay in startup and the interface with the operational insurance programme. Sensitive and expensive third-party equipment may be installed whilst works are still ongoing, and the delineation between operational data halls and those still in construction is not always easy to define for asset insurance purposes.
The significant fit-out phase that follows initial construction, including installation of high-value cooling systems, power cabling and substations, can cost multiples of the shell and core construction cost.
Risk mitigation for data centres
While bigger cloud providers and institutional investors funding the construction of facilities are likely to have a good understanding of the potential exposures and a sophisticated approach to risk management and insurance buying, the scale and speed of expansion may exceed their ability to track exposures. At the same time, many traditional real estate companies have entered this sector as new entrants given the obvious appeal.
Lack of experience can be a contractor issue as well. A major risk management challenge for data centre construction is the limited availability of specialist contractors to complete the works given the booming activity.
Timing is crucial for many data centre projects. Speculative developments may have staged construction; firstly, to get the site ready for construction, including any necessary utility connections and secondly, full construction, to meet defined dates once commercial agreements are signed. Insurance brokers need to consider the future plans and the most economical way to structure the coverage. Future expansion phases may also need to be factored in.
Partnering with a broker who has a proven track record with data centre builds and has the specialist knowledge to address the specific risk management and insurance needs of these projects is key to obtaining comprehensive cover, designed with the project team’s aims and objectives in mind, and at optimal commercial terms.

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