Risk managing data centre developments
As the sector accelerates, data centre developers, owners and contractors face risks beyond conventional industrial or logistics projects. Power availability, intricate fit-out and specialist insurance all affect programme certainty and liability. Success increasingly depends on early coordination and clear risk allocation from the earliest stages.
The surge is driven by demand from the likes of hyperscale cloud providers such as Amazon, Google, Microsoft and Meta, and colocation facilities (where third-party businesses rent secure space) and emerging AI-focused platforms.
Panattoni, which is one of the world’s largest privately owned industrial developers, has now entered the data centre sector, illustrating how traditional players are adapting their capabilities to meet these challenges. The company is targeting the hyperscale market, focusing primarily on the delivery of powered shells rather than full fit-out. It’s an approach that reflects both market demand and risk allocation.
Panattoni global senior risk manager Rebecca Orig says it fits the company’s expertise in acquiring sites, building and then selling industrial logistics developments. She says it also plays to existing contractor and investor relationships and the company’s strength in sourcing land across Europe.
“We’re hoping to bring down the cost,” she says, “because data centres are typically €5,000 [£4,300] per square metre, versus logistics developments, which are €650 [£550].” She says hyperscale clients typically prefer to retain control of specialist fit-out works, leaving developers to concentrate on land acquisition, permitting, shell construction and power infrastructure. She adds that the last of these is critical in data centre site selection, as grid capacity and connection can determine project viability.
Power availability as a defining constraint Data centres are largely impotent without available power, which means interruption risk is mitigated by several different types of uninterruptible power supply (UPS) systems. From a risk standpoint, the electrical infrastructure is integral to the viability of the project and can potentially change the risk profile of both the build and eventual operation of a data centre.
As Pedro Valero, construction team leader, Central and Eastern Europe and Asia, at insurance broker Willis, says: “While the majority of facilities continue to depend on grid connections supported by conventional backup solutions, there is interest in alternative power sources.
“Although several years from commercialisation, Small Modular Reactors (SMRs) may have a role to play and are already on Willis’ radar, where construction and operational risk is concerned. While they often add to the mix through onsite installations like solar panels and Battery Energy Storage Systems (BESS), renewables are currently unable to provide enough reliable power to support data centre operations.”
Supply chain risk is another defining feature of data centre development. Orig says long lead times for critical components like transformers can reach 24 months, making procurement strategy a key driver of programme risk.
She says Panattoni mitigates this through early contractor engagement and reliance on established supplier relationships. “That’s a really big piece for us,” she says, “and we manage it through continuous engagement with the supply chain so that we can deliver the product.”
Once substations are energised, the risk profile changes again. Live electrical systems mean heightened exposure, particularly if energisation occurs early in the construction programme, and this influences the kind of cover insurers are willing to provide.
Fit-out strategy
While shell construction may in some respects resemble logistics developments, the value of fit-out is significantly higher. Valero says data centre owners often procure a substantial proportion of fit-out equipment directly, rather than through a single engineering, procurement and construction contractor. “A big proportion of the values to be insured are procured directly by the owner, rather than through the contractor,” he says.
Cooling systems, electrical infrastructure and IT installations can account for the majority of insured value, particularly during testing and commissioning. Valero says insurers typically approach these elements with greater caution, often restricting cover around defects in workmanship or materials, as they generally view a big part of the that risk being owned by the technology provider.
Separating shell construction from fit-out simplifies insurance placement at the early stages, but means complexity later. Once a shell is completed and handed over, such as with Panattoni’s delivery model, it becomes an existing property risk. Subsequent fit-out works then sit alongside property insurance, rather than under a single construction policy. Valero says this is a recurring challenge: “Aligning property insurance with construction or erection risk has always been challenging for the market,” he says.
Where different policies or insurers apply to shell and fit-out phases, brokers play a critical role in ensuring that coverage aligns and that no gaps emerge. This becomes even more important on multi-phase or colocation developments. For these, only part of a facility may be fitted out initially, with additional data halls completed later, sometimes after operations have begun. Insurers scrutinise such projects, particularly where operational assets coexist with ongoing works.
Contractual risk and insurability
Across both shell delivery and fit-out, risk allocation is central to insurability. Waivers of subrogation, indemnities and responsibility for damage must reflect what insurers are prepared to support.
Property insurers, Valero explains, are often less comfortable granting waivers to contractors undertaking works on operational properties, as such works materially alter the risk profile compared to a static property exposure. Consequently, insurers typically expect contractors to retain an appropriate level of responsibility for damage arising directly from construction activities.
This reinforces the importance of early engagement with insurance brokers. “Once something’s signed in a contract, it’s there, and not all of the exposures agreed are necessarily insurable,” Valero says. Reviewing contracts before they are finalised allows developers and contractors to understand which risks can be transferred and which must be retained.
Data centres can only get bigger, bolder and more valuable, not just as single facilities, but as multi-site campuses. As such, their construction will mean insurance markets will be increasingly drawn into the sector, attracted by the opportunities. Orig says the absence of long-term claims histories in the sector makes it difficult for insurers and bonding markets to assess appropriate limits, particularly for property insurance and large guarantees.
In this environment, brokers must help structure cover to reflect complex phasing and support clients in tightening markets. Orig emphasises the importance of brokers who understand a developer’s business model and can help with unconventional risks.
Data centre development combines industrial-scale construction with technology-driven risk and unprecedented asset values. Power availability, procurement strategy, phased delivery and insurance alignment all shape project viability. But early planning, careful contractual structuring and appropriate insurance programmes allow developers and contractors to manage exposure more effectively.
Find out more
Pedro Valero
44 7930 859258
[email protected]
James Pearce
44 7823 901459
[email protected]
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