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The UAE has the largest concentration of data centres in the Middle East and North Africa, but it is grappling with a capacity crunch.
A surge in demand from the artificial intelligence sector is putting a strain on existing infrastructure, driving up costs and posing a challenge to future growth, industry experts have told AGBI.
To diversify its economy away from oil, the Emirates has been positioning itself as a global tech powerhouse, leveraging vast capital reserves and favourable regulations. These efforts have made it an attractive destination for AI startups seeking growth and investment opportunities.
Data centres are critical for AI because they provide the massive computational power and data storage required.
Quentin Reyes, CEO of IT system data services company Hyperfusion in Dubai, describes infrastructure as one of the “biggest bottlenecks” for AI in the region.
Hyperfusion provides cloud-based access to high-powered graphics processing units, which are critical for handling the demands of AI.
“Most of the data centres are full,” Reyes tells AGBI. “Most of them are completely at capacity. You cannot build full clusters any more. So that’s pretty problematic.”
He also points out that the majority of data centres worldwide were built for the cloud and storage, but AI requires far greater power and specialised infrastructure.
Bashar Kilani, founder and managing director of AI360 Innovations, says, despite significant investment, data centre demand in the UAE “continues to outpace supply”.
This shortage is especially pronounced as more organisations move towards hyperscale operations – large-scale computing infrastructure designed to support massive data storage and processing needs – which require big and more advanced frameworks, Kilani says.
“This has led to higher costs, delays and reliance on international data centres, which can affect performance and operational efficiency.”
A Knight Frank report in 2023 showed data centre vacancy across the UAE had dropped from the 2010s, with only 9 percent available by the third quarter of 2023.
Yet Mahesh Jaishankar, senior adviser at consultancy Arthur D Little, says that while demand for data centres in the UAE and wider region is growing rapidly, AI ventures typically account for their specific requirements and factor lead times into their business plans.
There is still some capacity available to buy for smaller customers, he says. “However, large specialised wholesale requirements of hundreds of racks – units that hold multiple servers – would be scarce,” Jaishankar says.
Opportunities for investment
AI could represent up to 9 percent, or about $150 billion, of GDP in GCC countries by 2030, according to consultants McKinsey.
However, experts agree that scaling data centre infrastructure is critical to staying competitive.
Kilani says the shortage highlights significant opportunities for investment in expanding data centre capacity.
The Middle East data centre market is projected to grow from $5.6 billion in 2023 to $9.6 billion by 2029, a Turner & Townsend report said this week.
Major investments from companies including Equinix, Mobily, Khazna Data Centers, a G42 and e& enterprise, Ooredoo, Gulf Data Hub and others are helping to expand the UAE’s capacity.
Data centre market share in the UAE
Knight Frank noted that the operator landscape remains narrow, with four providers controlling 87 percent of the country’s live supply.
The report said that a lack of transparency during tender processes, along with uncertainties about data ownership and clarification on privacy, protection and other ownership-like rights, complicate market entry for foreign investors.
With active data centre projects amounting to $1.2 billion and a future project pipeline of $433 million, the UAE’s data centre industry is one of the fastest growing in the Middle East, according to Turner & Townsend.
“There’s a lot of investment that needs to be done in the region – data centres being the number one, but also [other] infrastructure,” Reyes says.
“The internet is extremely important for us, and right now the infrastructure is not that good.”
GreyMatterz Thought
The UAE faces a data center capacity crunch driven by surging AI demand, highlighting both infrastructure challenges and significant investment opportunities. Expanding capacity is critical to support the region’s growing AI ambitions and maintain competitiveness.
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