Data centre construction driving costs up in UK construction market

Data centre construction is constraining the supply of labour in the UK construction market – leading to significant cost growth across the country. London remains the most expensive place to build in Britain, but the gap with other hubs is not growing, as the likes of Birmingham and Glasgow see prices spike.

Since 2023, AI hype has come with a caveat: to unlock the potential of the technology, more capacity will have to be opened up to power AI solutions. The UK’s government, voted into power in 2024, bought into this wholesale – partially out of the belief it would attract foreign direct investment – and has maintained a commitment to give new data centres priority – pushing back regulatory measures to enable data centre projects to build on green belt land via a fast-tracked scheme that would prevent local councils from blocking new sites.

But while FDI has flocked to the UK as a result of its data centre drive, the policy has achieved questionable results. While so much has been devoted to giving AI’s proponents what they want, there remains little of value to show for the investment, with the vast majority of companies finding the technology has no scalable value at their organisation. Meanwhile, the energy-hungry infrastructure now accounts for 6% of UK electricity use, while plans to triple capacity by 2030 have placed significant strains on the UK’s water supply – leading to further pricing spikes in household utility bills.

A new report from Turner & Townsend shows that data centre demand is also having a drastic impact on the wider construction industry. According to the research, soaring demand for data centres, is squeezing global construction market capacity, including in the UK, adding to skilled labour shortages.

Data centres now the second most in-demand construction sector in the UK, with defence first and industrial and logistics third. Amid inexorable growth in the segment, this has led data centre construction to be the most constrained sector globally when it comes to contractor capacity, with over 70% of the 112 markets analysed reporting tightening or overstretched capacity – raising demand for skilled labour, and the prices associated with it.

Skills deficits are particularly acute in the specialist mechanical, electrical and plumbing trades, with 100% of UK respondents from the industry citing shortages of qualified mechanical, electrical, and plumbing workers, which are essential in tech-centred projects. This has also contributed to a shift in the costs of construction between region.

London remains the most expensive place to build in the country at $6,032.5 per square metre, placing it fifth in the global ranking, with costs expected to increase by 3.5% in 2026 and 2027. However, cost pressures are now also rising in the regions, with Birmingham, Edinburgh and Glasgow set to see inflation rise from 4.0% in 2026 to 5.0% in 2027 – keeping pace with London in a way that means what was once an expanding cost-gap is now shrinking.

Stephanie Marshall, managing director for real estate cost management at Turner & Townsend, said, “Demand is increasingly uneven and concentrated on AI-driven sectors like data centres, while broader labour constraints, supply chain volatility and geopolitical risk are becoming more pronounced. In the UK, there is a very real risk that growth in the pool of skilled labour needed to build data centres won’t keep up with demand. Additionally, the impact on energy prices of the conflict in the Middle East will be indirect and uneven, varying by geography and sector depending on supply chain structure and energy dependence.”