United Arab Emirates datacenter sector is poised for continued expansion

Introduction

The United Arab Emirates has emerged as a regional business and technology center. This is being driven by strategic initiatives and the creation of free zones to entice international and local businesses, fostering a competitive market that propels growth in the datacenter sector. Many datacenter operators have expanded beyond colocation, becoming cloud service and digital transformation partners to local organizations.

The UAE aspires to become an AI hub in the Middle East, which should boost demand for compute, storage and connectivity. Despite challenges around carrier-neutrality, datacenter capacity is expanding, most notably in Abu Dhabi and Dubai. This growth is expected to gain momentum, fueled by major players like Khazna Data Center and Gulf Data Hub, as well as the construction of larger facilities to accommodate AI workloads.

The Take

The UAE datacenter market is undergoing a significant transformation amid the rise of digital services. Recent developments by major cloud suppliers like Microsoft Corp. and Amazon Web Services have redrawn the competitive field. As hyperscalers expand their presence, it not only adds to aggregate demand for datacenter capacity but also drives service-level and functionality expectations for infrastructure. Projections for the next five years indicate a significant increase in leased datacenter buildouts, signaling a solid growth trajectory.

Moreover, the UAE is spending substantial funds to emerge as one of the leading AI centers in the Middle East, with the latest news regarding opening AI campuses. While political instability in the region could make some investors question their risk tolerance or become more cautious in their investment strategy, the country's well-proven regulatory framework, infrastructure development and relatively secure geopolitics make it an inviting center for regional digital infrastructure and AI innovation.

Market overview

Over the past 10 years, the UAE has, by way of economic diversification, drifted away from its historic dependence on oil and gas, particularly in Abu Dhabi and Dubai. Most UAE organizations utilize a hybrid model that incorporates colocation and cloud services. Local and federal government agencies are heavy users of datacenter services, and the Abu Dhabi Digital Authority has been a central player in promoting and offering digital government services.

More recently, the UAE has become a probable AI hub in the Middle East, and one of the first in the region to have a Minister of State for Artificial Intelligence. Abu Dhabi has also undertaken large projects led by Stargate to promote innovation and build a robust AI ecosystem, which is expected to attract international technology firms and startups and further cement the country's position in the digital economy.

However, the competitive landscape in the Middle East is transforming, especially with ambitious expansion plans being implemented in Saudi Arabia. One of the major developments is NVIDIA Corp.'s partnership with Humain, a Saudi sovereign wealth-backed AI startup, to invest $10 billion for the construction of new facilities. With the UAE and Saudi Arabia both aiming to enhance their AI and datacenter projects, competition for the role of the region's leading digital and technological hub is intensifying.

Cloud providers

The UAE is becoming a primary location for hyperscale datacenters and cloud offerings in the Middle East due to heightened demand from the government and enterprise sectors as businesses look to bolster their digital infrastructure. The government has been encouraging datacenter and cloud services growth because it feels that infrastructure as a service (IaaS) can enable the development of startups with less cost as well as rapid scaling for local innovators.

Major cloud players have made significant strides in the market. Oracle Corp. entered Abu Dhabi in 2019 with a facility designed to support its public cloud services, partnering with Etisalat and possibly leasing space in the latter's facilities. In 2020, Oracle made a further foray into Dubai with Emirates Integrated Telecommunications Company PJSC (du) and, in 2024, announced plans to develop a joint sovereign cloud platform. Google, which established its UAE presence in 2012 and began selling its Google Cloud Platform in 2017, utilizes Dubai and Fujairah as edge network locations but Dammam in Saudi Arabia and Doha in Qatar as its primary cloud availability regions.

Alibaba Cloud unveiled its first Middle Eastern datacenter in Dubai in 2016, and disclosed in March 2023 that it would be upgrading this facility to host AI workloads. Amazon Web Services introduced its Direct Connect services and CloudFront edge locations in Dubai and Fujairah in 2018, followed by the opening of a cloud region in Bahrain in 2019. In 2022, it made the UAE its second Middle East region by leasing space rather than constructing new facilities.

Microsoft launched its initial cloud datacenter region in the UAE in 2019 and signed a strategic partnership with G42 in 2024, committing $1.5 billion to create AI innovations in the country as well as globally while renting sites from regional providers. IBM Corp. fortified its cloud infrastructure by opening its inaugural regional datacenters in Abu Dhabi and Dubai in 2020, while SAP SE boasts three facilities for cloud services in Dubai and Saudi Arabia.

G42 and Microsoft are collaborating to develop AI services on Microsoft Azure, and have established a $1 billion fund to support UAE developers. Finally, OpenAI plans to build Stargate UAE in Abu Dhabi — its first overseas expansion — via the OpenAI for Countries initiative that was developed in partnership with G42 and supported by Oracle, NVIDIA, Cisco Systems Inc. and SoftBank Corp.

Competitive landscape

Currently, most providers in the UAE offer some level of retail colocation and managed services, but few are interconnectivity-oriented (i.e., provide access to 10 or more carriers). Equinix Inc. is the only carrier- and service-neutral player that offers stand-alone retail colocation services, while other operators primarily deliver managed services or IaaS. Khazna, Gulf Data Hub and Pure Data Centres provide only wholesale supply.

Interconnection-wise, Equinix is the biggest player in the UAE, having an internet exchange within its datacenter campus in Dubai. UAE-IX, which is run by Frankfurt-based DE-CIX Management, offers passive cross-connects to approximately 70 carriers, content/cloud providers and enterprises. Khazna has been significantly expanding its supply in the UAE, adding 95.3 MW in Abu Dhabi and 31.5 MW in Dubai in 2024, with a further 14.4 MW in Abu Dhabi and 4.8 MW in Dubai to follow by the end of 2025.

In the first half of this year, e& increased its facility in Fujairah by 4 MW, while du plans to boost capacity by a further 65 MW before the end of 2026. Gulf Data Hub intends to introduce major supply in Abu Dhabi and Dubai over the next five years, seeking to bring in a total of approximately 132 MW. Pure launched its first hyperscale site in Abu Dhabi in early 2025, offering 22.5 MW of capacity, with an additional 22.5 MW to be brought online by the end of 2027. G42 plans to bring online its first 150 MW of capacity as part of the Stargate AI campus by the end of 2026.