Data Center Costs Soaring in Singapore, Are Businesses Turning to IT Outsourcing?

Singapore has long positioned itself as Asia's leading digital hub - a place where cloud providers, hyperscalers, and global enterprises build critical infrastructure for the region. But in 2025, that reputation comes with a new challenge: rising technology costs, especially for building and operating data centers.  

According to VnExpress International (2025), Singapore is now the second most expensive market in the world for data center construction, reaching US$14.53 per watt. This places the country just behind Tokyo and ahead of other heavyweights like Silicon Valley.  

For a nation that relies heavily on digital infrastructure, this sharp increase raises a critical question for businesses: Is it still sustainable to build and maintain on-premise data infrastructure in Singapore, or is IT outsourcing becoming the smarter, more cost-effective move? 

This article explores the reasons behind the surge in data center costs, how local businesses are reacting, and why IT outsourcing, managed services, and regional software partnerships are becoming the preferred strategy. 

Why Are Data Center Costs Rising So Quickly in Singapore? 

Cost Driver	Impact	Details
AI Workloads	20x power increase	Rack requirements jumped from 3–5 kW to 100–120 kW
Land Scarcity	Limited supply	Slow approvals, high competition for space
ESG Requirements	Higher standards	Lower PUE, sustainable cooling, renewable energy
Cloud Demand	Resource competition	AWS, Azure, Google Cloud expansion drives prices up

Source: Turner & Townsend International Construction Market Report 2025 

• AI and High-Density Workloads 
  Rack power requirements jumped from 3–5 kW to 100–120 kW per rack—a 20x increase that demands sophisticated cooling and power systems. 

• Limited Land and Power 
  Singapore's land scarcity and strict power allocation create bottlenecks. New facility approvals are slow, competitive, and expensive. 

• Strict ESG Requirements 
  Net Zero 2050 commitments force compliance with lower PUE standards, sustainable cooling, renewable energy integration, and high operational efficiency. 

• Rising Cloud Provider Demand 
  AWS, Microsoft Azure, and Google Cloud expansion drives up costs for land, energy, and engineering talent. 

How Rising Data Center Costs Affect Singapore Businesses 

For enterprises with strong financial capacity, the rising cost of digital infrastructure may simply be another investment. But for many SMEs, startups, and mid-sized firms, the impact is much more significant. 

Businesses now face: 

• Increasing hardware expenses 
• Higher cooling and electricity bills 
• Limited access to new data center capacity 
• Delays in infrastructure expansion 
• Talent shortages in data engineering and cybersecurity 

Building and maintaining physical infrastructure in Singapore is quickly becoming a luxury rather than a default. 

Why More Singapore Companies Are Turning to IT Outsourcing 

The combination of rising costs, higher technical complexity, and talent shortages has pushed companies to reconsider how they run their IT operations. Here are the key drivers: 

• Lower Upfront Costs 
  Traditional setups require major CAPEX for hardware, racks, cooling, and security. Outsourcing converts these to predictable monthly OPEX. 

• Access to Global Talent 
  Singapore's tech talent shortage and high salaries drive businesses to partner with IT outsourcing companies and software development companies for skilled engineers at better rates. 

• Faster Deployment 
  Outsourcing enables quick team scaling, rapid product deployment, 24/7 support, and agile response to demand spikes which are critical for fintech, e-commerce, and SaaS companies. 

• Professional Maintenance 
  IT managed service providers handle monitoring, cybersecurity, updates, cloud optimization, and disaster recovery, making it difficult to achieve with small in-house teams. 

• No Physical Infrastructure 
  Cloud-first and outsourcing models eliminate the need to own expensive physical servers. 

On-Premise IT vs IT Outsourcing: Decision Framework 

Factor	On-Premise	IT Outsourcing
Initial Investment	High (hardware, facilities, setup)	Low (service-based)
Scalability	Slow, equipment-dependent	Rapid, flexible
Operating Costs	Staff, upgrades, maintenance	Predictable monthly fees
Security Control	Full ownership (costly)	Enterprise-grade (included)
Best For	Stable workloads, large budgets	Growth-stage, cost-conscious firms

When Should Businesses Choose IT Outsourcing? 

Choose IT Outsourcing if you: 

• Want to cut upfront IT costs 
• Have trouble hiring local tech talent 
• Need fast deployment and scalability 
• Prefer predictable monthly spending 
• Want to avoid data center complexities 
• Plan to expand or digitalize quickly 
• Operate in fast-moving industries 

Choose On-Premise if you: 

• Handle highly sensitive data with strict sovereignty requirements 
• Have very stable workloads 
• Possess substantial capital reserves 
• Maintain internal teams capable of managing complex systems 

Regional Solution 

As infrastructure costs escalate, Singapore businesses increasingly partner with Vietnamese software development firms for cost-effective engineering capacity. With over 600 qualified engineers and 700+ completed projects, regional providers offer quality technical delivery at substantially lower operational costs. 

Ready to evaluate your options? Contact Kaopiz for a consultation on IT outsourcing and managed services. 

Conclusion 

Singapore will remain one of the world's most advanced digital economies. However, as data center construction costs continue to rise-driven by AI workloads, land scarcity, and sustainability requirements, companies must rethink traditional IT models. 

IT outsourcing, managed services, and cloud-first strategies offer businesses a practical alternative: lower cost, higher flexibility, and faster access to global engineering talent. In a digital economy that moves quickly, companies that adopt this flexible, outsourced approach will stay competitive, innovate faster, and reduce the heavy burden of physical infrastructure investment.