The Middle East data center construction market was valued at USD 1.84 billion in 2022 and is expected to reach USD 2.86 billion by 2028, growing at a CAGR of 7.59% during the forecast period. The presence of industrial parks, the availability of land, and the government's support motivate data center operators to develop data centers in Middle Eastern countries. For instance, the Government of Bahrain announced the launching of its first data center park, which includes the development of its first data center by stc Bahrain through collaboration with the ministry of transport and Telecommunications. The Middle East data center construction market will likely witness some new entrants in 2022, including Digital Realty, Infinity, EDGNEX, Global Technical Realty, Quantum Switch, and ZeroPoint DC. However, these new players will face competition from local and established global players.

The major cloud service providers in the Middle East data center construction market include Microsoft, Tencent Cloud, Oracle, Amazon Web Services, and Alibaba Cloud. For instance, Microsoft announced its intention to open a cloud region in Saudi Arabia. Most Middle Eastern countries have the availability of Free Trade Zones (FTZs). For instance, Oman has free trade zones such as the Al Mazunah Free Zone, Salalah Free Zone, Sohar Free Zone, and Duqm SEZ. These zones provide multiple benefits to investors, including corporate tax exemption, total exemption of import and export taxes, and local labor recruitment.

KEY HIGHLIGHTS

• UAE and Saudi Arabia are the major contributors to the capacity in the Middle East data center construction market, with around 30% and 27%, and the market in these countries is expected to skyrocket in four to five years due to the shift of the oil economy to the digital economy in the region. Other factors include the continuous increase in investments in cloud-based services and smart city developments in the UAE and Kingdom of Saudi Arabia.
• Digitalization across businesses will increase data center investments by colocation, cloud, Internet, and telecommunication providers. Some telecom companies such as Ericsson, stc, Turk Telecom, Cellcom, Zain, Nokia, Vodafone, Ooredoo, du, and Omantel are responsible for deploying and introducing 5G services in Middle Eastern countries.
• The presence of industrial parks, the availability of land, and the government's support motivate data center operators to develop data centers in Middle Eastern countries. For instance, the Government of Bahrain announced the launching of its first data center park, which includes the development of its first data center by stc Bahrain through collaboration with the ministry of transport and Telecommunications.

MARKET TRENDS & DRIVERS

Rise in the Procurement of Renewable Energy Sources

• The Middle East has an abundance of availability of solar energy, where most of the countries in the region are undertaking renewable energy strategies & visions to develop renewable energy projects and meet the carbon-neutral goals set by respective governments in the region.
  • In the UAE, the Energy Strategy 2050 aims to increase the share of renewable energy from 25% to 50% in the total energy mix by 2050.
  • Saudi Arabia has launched The National Renewable Energy Program (NREP) under Vision 2030, where 13 projects will generate over 4.8 GW of renewable energy. In addition, Bahrain plans to generate around 280 MW of electricity from renewable sources by 2025, increasing to around 700 MW by 2030 to attain national renewable energy targets.
• In December 2022, Saudi Arabia announced the development of 10 renewable energy projects with a power capacity of 7 GW, which is part of the Kingdom’s 2030 Vision.
• In February 2022, Quantum Switch Tamasuk (QST) signed a deal with the Ministry of Communications and Information Technology (MCIT) Saudi Arabia to develop data center facilities in Saudi Arabia. Additionally, both parties will collaborate to secure and develop renewable energy sources to power their facilities.
• Some companies in the Middle East data center construction market, such as Equinix, Moro Hub, and Khazna Data Centers, are investing in renewable energy for installing solar panels and innovating to benefit from solar energy generation. For instance, in November 2022, Moro Hub data center facility located DEWA solar farm received the Guinness World Record as it is one of the largest solar-powered data centers in the world.

Increasing Cloud Investments
The increase in digitalization and the shift of workloads to cloud platforms from on-premises facilities to make their operations more efficient and scalable witnessed the increase in investments by cloud service providers in the Middle East over the last few years.

• Amazon Web Services aims to develop the infrastructure region in Tel Aviv, Israel, which will likely be operational in 2023.
• In 2022, Google Cloud launched its first local cloud region in Israel. Amazon outpost cloud services were deployed for the first time in Oman in the Oman Data Park, and Microsoft Azure established its first global data center region in Qatar.

SEGMENTATION INSIGHTS

• Most facilities are being developed to operate at a PUE of less than 1.5. In contrast, few facilities in countries like Turkey that adopt partial free cooling during peak winters aim to operate at a PUE of less than 1.3.
• In the Middle East data center construction market, the investment in cooling infrastructure contributes to the major share of more than 50% in the mechanical infrastructure due to the high temperature in some countries during the peak summers.
• The region witnessed growth in the deployment of data centers in Tier III and Tier IV certification in the design phase/construction phase of the region. In contrast, most private and public entities (BFSI, education, government) have received Uptime Institute’s Tier III/IV certification during the design phase or for the constructed facility.

GEOGRAPHICAL ANALYSIS

• UAE dominates the regional industry in terms of data center developments. In addition, Saudi Arabia, Israel, and Oman are among the major contributors to high data center development activities in the Middle East. Qatar, Bahrain, and Kuwait are emerging markets that witness significant growth as a result of digitalization and growth in connectivity.
• In the Middle East data center construction market, the presence of smart cities in the region also drives investments. For instance, the NEOM project in Saudi Arabia is under development as a part of Crown Prince Mohammed bin Salman’s Vision 2030, which will also comprise the data center development under a joint venture firm ZeroPoint DC.
• Regarding upcoming power capacity (IT load), Saudi Arabia is dominating the Middle East data center construction market with an excess of 500 MW of under-construction/announced/planned capacity. The UAE follows Saudi Arabia with an excess of over 200 MW of under-construction/planned capacity.

KEY MARKET PARTICIPANT INITIATIVES

• The surge in data center activities across the country will be a major source of revenue for construction contractors. Some prominent local and global construction contractors in the Middle East data center construction market include AECOM, Laing O’Rourke, Dar Group, AlDar Properties, Mercury Engineering, Deerns, Anel Group, ENMAR Engineering, Arup, DC Pro Engineering, Edarat, HHM Building Contracting, and Red Engineering. For instance, Laing O’Rourke is selected by Khazna Data Centres to design and build a facility and office space in Dubai Design District.
• Colocation Service Providers such as Khazna Data Centres and Gulf Data Hub are the major data center operators with over ten existing facilities in the region. At the same time, the Middle Eastern region is witnessing potential growth through these providers by developing more facilities across UAE, Saudi Arabia, Oman, Kuwait, Qatar, and Bahrain which are expected to be operational during the forecast period.
• The increase in demand across different industries in the region has led operators to sign several M&A contracts and enter joint ventures (JVs) to expand their portfolios in Saudi Arabia. For instance, In September 2022, Khazna Data Centers and BEEAH Digital formed a JV termed One Data Center SPV. The newly formed company plans to build a 9-MW data center in Sharjah, UAE.