Unlocking the data centre opportunity in the Middle East

The Middle East is rapidly becoming a data centre powerhouse, with capacity in the region projected to triple, from 1GW in 2025 to 3.3GW over the next five¹ years. This growth is driven by a surge in cloud computing and Artificial Intelligence (AI), an increasing demand for digital infrastructure, strategic regulatory initiatives and substantial investments by both global hyperscalers and regional players. The GCC countries are at the forefront of this transformation, leveraging their unique geographical, economic and technological advantages to lead the region’s evolving data centre ecosystem.

Driving transformation: Visionary initiatives

The UAE has made significant strides in its data centre ecosystem with Khazna Data Centres recently unveiling a 100 MW AI facility in Abu Dhabi and plans to deploy significantly more capacity in the long term. Saudi Arabia has also announced several initiatives in this space including the US$100 billion Transcendence AI Initiative backed by the Public Investment Fund (PIF) and a US$5.3 billion commitment from Amazon Web Services (AWS) to develop new data centres. Qatar's investment in digital infrastructure, along with strict data security regulations, has attracted global players to establish data centers within the country.

Other nations in the Middle East have also planned significant investments including Omniva's announcement of 1GW data centre in Kuwait, Equinix-Omantel partnership for SN1 in Salalah, and Batelco-Qareeb partnership for a facility in Bahrain.

Growth enablers: What’s driving demand?

The Middle East’s data centre market is growing at an unprecedented pace, driven by several key factors that are reshaping the digital infrastructure landscape.

1. Migration to cloud solutions

The shift from on-premises systems to cloud solutions is a key growth driver. While there is a global trend of companies moving workloads to cost-efficient cloud regions, industries like public sector, banking, gaming and social media prioritise local hosting to meet strict data residency and latency needs. This trend fuels demand for cutting-edge domestic data centers across the region.

2. The rise of Artificial Intelligence

AI workloads require substantially more power and advanced cooling solutions than traditional workloads, creating a surge in demand for high-performance data centre infrastructure. Saudi Arabia’s Transcendence AI Initiative, backed by the Public Investment Fund (PIF), is a prime example of the region’s ambition to lead in AI. This initiative includes the PIF-Google AI Hub partnership, which aims to develop Arabic language AI models and strengthen regional cloud services.

3. Government-led regulatory incentives

Governments across the Middle East are actively fostering a business-friendly environment for data centre investments. Saudi Arabia’s Cloud Computing Special Economic Zone (CCSEZ), launched in 2023, provides tax benefits and streamlined processes to attract foreign investment. The CCSEZ is expected to account for 30% of the Kingdom’s ICT spending by 2030. Similarly, the UAE and Oman are creating favourable conditions for hyperscalers and independent operators, ensuring a thriving ecosystem for digital infrastructure. 

A competitive edge: The Middle East advantage

The Middle East offers unique advantages that make it a prime destination for data centre investments. These advantages include low-cost land, affordable power, attractive connectivity prices, access to capital and favourable foreign policies.

1. Cost of land

Land costs in the Middle East, particularly in Saudi Arabia, are significantly lower than in major data centre hubs globally. Industrial land in Saudi Arabia typically costs US$10 to US$50 per square metre, compared to US$150 to US$600 per square metre in US hubs like Northern Virginia². This cost advantage makes it economically feasible for operators to build and scale large facilities.

2. Cost of power

Power is the largest recurring expense for data centres, and the Middle East’s abundant energy resources provide a substantial cost advantage. Electricity tariffs in Saudi Arabia and UAE range from US$0.05 to US$0.06 per kWh, well below the US average of US$0.09 to US$0.15 per kWh³. Renewable energy projects in the region offer even cheaper tariffs – for example, US$0.014 per kWh from the Al Dhafra Solar Project in Abu Dhabi, UAE. This affordability is especially important for power-intensive workloads such as AI, which require substantial energy for both computation and cooling.  

3. Availability of connectivity

The Middle East’s strategic location as a global data crossroads has driven the development of a dense and sophisticated network of submarine cable systems. Projects like the 2Africa cable and SMW6 strengthen connections between Asia, the Middle East, and Europe, while the Blue and Raman cable systems link Italy, Greece, Israel, and India. Regional initiatives such as the Gulf Gateway Cable (GGC1) and the Al Khaleej subsea cable system enhance intra-Gulf connectivity, reinforcing the region’s role as a key hub for global digital infrastructure. This drives competitive connectivity pricing, making the region attractive for data-intensive operations.   

4. Access to capital

The Middle East boasts unparalleled access to capital, driven by its massive sovereign wealth funds (SWFs) and growing interest from global private equity investors. Funds like Saudi Arabia’s PIF, the UAE’s Mubadala, and Qatar’s Investment Authority are actively channeling billions into data centres as part of their diversification strategies. This, combined with strong private equity interest (for example, KKR’s strategic partnership with Gulf Data Hub to invest US$5 billion in data centres), ensures ample funding for building state-of-the-art data centres, including those optimized for AI workloads.

5. Favorable foreign policies

The Middle East, particularly the GCC countries, benefits from strong international ties and favourable trade relationships with global economic centers. These connections position the region as a strategic hub for both importing critical data centre equipment (for example,  AI chips, state-of-the-art cooling technologies, and spare parts) and serving international computing demand (expanding the regions addressable market). 

Overcoming challenges to sustain growth

Despite its immense potential, the Middle East’s data centre sector faces challenges that must be addressed to sustain growth.

1. Power availability and renewable energy targets

Power availability and consumption are critical issues, particularly for AI-focused data centres that require up to 10 times more power than traditional facilities. To address renewable power needs at this scale, governments are adapting to an integrated approach, synchronising planning for power and data centre projects. 

For example, Masdar, the UAE’s clean energy company, recently launched a facility capable of producing 1 GW of uninterrupted renewable energy.⁴ This project, expected to be operational by 2027, will significantly contribute to the region’s renewable energy capacity and support power-intensive operations such as data centres. This aligns with the Middle East’s broader sustainability goals and positions the region as a leader in integrating green energy into digital infrastructure.

Other initiatives, such as ACWA Power’s portfolio of 11 solar projects in Saudi Arabia - with a combined photovoltaic capacity of over 12GW, further underscore the region’s commitment to aligning data centre operations with global sustainability targets.⁵

2. Supply chain constraints

Supply chain constraints also present obstacles, with delays in sourcing advanced cooling systems, GPUs and AI chips impacting deployment timelines. Partnering with hyperscalers often alleviates the chip concern since they have their own chips, for example Google’s Tensor Processing Unit (TPU), and have strategic partnerships with other chip providers (for example, with NVIDIA). However, hyperscalers are increasingly asking operators to invest in costly AI chips, which add financial pressure due to their shorter useful life and higher operational requirements.

3. Globalisation of demand

A large portion of computing demand from cloud-based and AI data centres is expected to come from outside the region. This is both a challenge and an opportunity for the Middle East. India’s Reliance Group announced a 1GW AI facility in Gujrat, and some of the existing AI facilities there are already underutilised. While the global need for computational power demand still exceeds the supply, this is an area to be monitored in the long term. However, geolocation and geopolitics are both in favour of the GCC countries as mentioned earlier.

4. Talent availability and scaling operations

The availability of skilled talent is another challenge, particularly in advanced technologies like AI and cloud computing. While hyperscalers like AWS and Microsoft have initiated training programs, building a robust local talent pipeline will be essential for long-term success. Additionally, scaling operations requires reliable operations and maintenance (O&M) partners.

Unlocking opportunities for stakeholders

The Middle East’s data centre market presents transformative opportunities for investors, operators and service providers. By focusing on the following key areas, stakeholders can capitalise on the region’s rapidly growing demand for digital infrastructure:

1. Building new data centres, including AI-optimised facilities

The rising demand for cloud computing, AI-driven applications, and enterprise data storage is accelerating the need for new data centres across the Middle East. Hyperscalers and regional providers are expanding their footprints to meet this growing demand. However, AI workloads require a different type of infrastructure, leading to a divergence in investment strategies, monetization timelines, and long-term growth potential compared to traditional data centres.

• Investment considerations: AI-optimised data centres require significantly higher upfront capital due to specialised hardware, advanced cooling systems, and increased power demands. Unlike traditional data centres, which are designed for general-purpose cloud computing, AI facilities must integrate high-density GPU clusters and liquid cooling technologies to handle extreme workloads. 

• Path to monetisation: AI data centres typically see a different revenue curve than non-AI facilities. While traditional data centres generate revenue from predictable (often pre-committed) enterprise and cloud storage contracts, AI-focused centres rely on demand ramp up from hyperscalers, AI research institutions, and enterprises deploying large-scale AI models that require training ahead of deployment. These customers often seek scalable and flexible capacity, leading to higher but less linear revenue potential. 

• Upside potential: The long-term growth trajectory of AI data centres is significantly higher due to the explosion of generative AI, large language models (LLMs), and AI-driven applications across industries. Countries like the UAE and Saudi Arabia are positioning themselves as AI powerhouses, driving substantial investment into AI-specific digital infrastructure. 

2. Investing in power, especially renewable energy 

Energy availability is a cornerstone of sustainable data centre growth. The Middle East’s push into renewables—solar, wind, and green hydrogen—presents a strategic advantage for both sustainability and cost-efficiency.

• Sustainability as a differentiator: Operators who integrate renewable energy will be better positioned to meet hyperscalers’ carbon reduction targets, securing long-term contracts and partnerships.

• Unlocking synergies: Private equity firms and sovereign wealth funds can unlock synergies by investing in renewable projects tied to data centre operations—lowering emissions while improving ROI through energy cost savings.

3. Addressing operational and maintenance demand

As the number of data centres in the Middle East grows, so does the demand for reliable operations and maintenance (O&M) services.

• O&M partnerships: Operators are increasingly outsourcing O&M tasks to specialised providers to focus on core business operations. This includes critical services such as monitoring, security, and technical support for both traditional and AI-optimized data centres.

• Opportunity for local talent development: O&M roles provide an avenue for workforce development in the region, with opportunities for upskilling in areas like advanced cooling, energy efficiency, and AI-driven monitoring systems.

4. Facilitating data centre-related logistics

Logistics plays a crucial role in the data centre value chain, from construction materials to advanced equipment such as GPUs, cooling systems, and high-performance servers. 

• Supply chain optimisation: The region must address supply chain challenges by developing efficient hubs for importing and distributing critical data centre components.

• Regional hubs: Ports in Jebel Ali (UAE) and Dammam (Saudi Arabia) can act as centralized logistics hubs, facilitating the seamless movement of goods.

• Opportunity for growth: Companies specializing in logistics can create tailored solutions for data centres, ensuring faster deployment of equipment and smoother operations. This includes the use of bonded warehouses, expedited customs clearance for critical imports, and real-time tracking of shipments.

Looking ahead 

Against the backdrop of the tailwinds outlined above - and with revenue premiums still observed compared to more developed markets - the sector offers highly attractive medium-term returns for infrastructure investors. This has led to strong interest from both global infrastructure funds and locally sourced capital. As a result, the few scaled regional data centre platforms are commanding robust valuations.