How the Middle East is Emerging as a Data Center Powerhouse Amid Booming AI Demand

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The Middle East is emerging as a data center powerhouse as demand surges for cloud computing and artificial intelligence (AI). Over the past few years, the region has attracted investments from tech giants like Google, Oracle, and Microsoft. 

According to Research and Market, the Middle East Data Center Market was valued at $5.57 billion in 2023 and is expected to reach $9.61 billion by 2029, rising at a CAGR of 9.52%.

Reflecting on this anticipated growth, Kamel Al-Tawil, Managing Director of Equinix MENA, notes that the sector’s evolution can be divided into two phases. “Before COVID-19, there was already strong momentum,” he says. “When the pandemic hit, it became clear that growth was impossible without a digital business or economy. This realization fueled the demand for data centers in a previously underserved region.”

While regional governments made digital transformation the core of their programs after COVID-19, Gen AI is driving a new wave of growth. 

The heightened demand and adoption of cloud technologies are also spurring growth opportunities. Bjorn Viedge, General Manager of ALEC Data Center Solutions, says, “Public cloud-type operators are showing interest, and there are many opportunities to build live-scale data centers. Following 5G’s expansion, we can further expect IoT and edge-type data center developments.” 

The need for enhanced data security and storage solutions is also rising amid digital transformation initiatives like the UAE’s Smart Dubai and Saudi Arabia’s Vision 2030 and the growing adoption of Gen AI, cloud computing, and IoT. Tassos Peppas, Regional Director for the Middle East, Turkey, and Central Asia (METCA) at Vertiv, notes that data center capacity is expanding rapidly to meet the increasing demand driven by these technologies.

Data Center Hub

Experts believe this marks the start of the region’s positioning as a data center destination, highlighting notable factors that make it particularly attractive for developers: 

Strategic location: As a gateway between the East and the West, the Middle East’s strategic location significantly enhances its appeal for data center deployment. Peppas notes that the region’s proximity to rapidly growing markets in Africa also adds another layer of appeal, as data centers in the region can allow businesses to expand their operations and reach new customer bases. 

Strong connectivity: Al-Tawil says there has been a surge in investments in network providers’ subsea cables across Oman, UAE, and Saudi Arabia, which serve as the core highways of the internet. Peppas notes that data centers in the Middle East allow for shorter data transit times, lower latency, and more reliable services to users across these continents.

Low energy cost: The region boasts substantial advantages in terms of energy access, with Al-Tawil noting that the synergy between power providers enables greater connectivity at a lower price. Viedge agrees, adding that this starkly contrasts Europe’s dated power infrastructure. “Data center developers in those markets are waiting 3-5 years for approvals from power utilities for the energy they need for these facilities. This is not the case in the region. In the UAE, for example, a lot of power infrastructure is already available between nuclear power plants in Abu Dhabi and large solar farms.”

Supportive regulatory framework: The regulatory framework is very pro-business and has proven more conducive for data center developers, which is evident in the growing investment from various regional companies. Noting the government’s effort to make it seamless for developers, Viedge says, “In Europe and the US, access to power, planning, and obtaining permissions remain to be obstacles, which is not the case for players in the Middle East where access to large amounts of water and land is not as much of an issue.” 

On Neutrality, Sustainability 

Amid the attractive features particular to the region, several considerations remain to ensure the data center sector continues to flourish sustainably from an operational and environmental perspective. 

According to Al-Tawil, the region’s development into a robust digital destination also hinges on the support of carrier-neutral data centers. Unlike carrier-owned or dependent data centers, which are tied to specific network providers, a carrier-neutral data center operates independently and is open to multiple network providers. “Being carrier-neutral enables networks to peer together, creating a dynamic digital economy. This openness is exactly what customers seek—they want access to a range of possibilities without restrictions.”

Governments are increasingly focusing on data sovereignty and developing frameworks and regulations on how and where data is stored, especially in response to recent data breaches. Viedge notes that while these concerns are primarily software-related, they will significantly influence how their data centers are constructed and how physical security is managed. 

On a governmental level, the handling of sensitive data will prompt country-specific regulations. Peppas adds that the geographic distribution of data centers also plays a crucial role in data management and storage. Localized data centers ensure compliance with regional data sovereignty laws and provide enhanced data protection.

Lastly, sustainability is a core priority. Although there is access to power within the Middle East, there is also a strong drive toward energy-efficient operations in light of broader environmental objectives, which is a big concern for data center developers. 

Collaboration and Skills Development in the Region

This highlights the growing importance of collaboration between the public and private sectors. Peppas points out that while the private sector is critical in establishing the Middle East as a global data hub, the region is increasingly adopting Public-Private Partnership (PPP) programs. These initiatives create a more attractive environment for private investors. Foreign investment is also driving innovation and technological advancements, helping the region remain competitive on a global scale and fostering local skill development.

A strong dialogue between sectors is crucial. Al-Tawil notes robust communication between the private sector and government regulators in the UAE, Saudi Arabia, and Oman. “We’ve had positive dialogue and received good feedback—they are listening to our needs and making it easier to do business. At the same time, global companies bring best practices from which the region can benefit.”