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The Great Space Race (For Data Centers)
Ali Greenwood, Executive Director, Data Center Advisory, Cushman & Wakefield
This last year has created an event greater reliance on technology with the work-from-home movement, telemedicine, FaceTime connections with family, explosive growth in financial trading thanks to online forum Reddit, internet conferencing, virtual schooling, online gaming, the IoT, the list goes on and on. All of this growth is creating increasing demand for data centers. Those big industrial-looking buildings with heavy fencing and robust infrastructure around them…. this is where all those servers live to power everything you do from a technology perspective. A tweet, stored photo, TikTok video, Netflix binge, sending a text or email, it ALL goes a through a data center somewhere.
Data centers have seen an explosive growth year-over-year (one could say rocket-like growth), and it looks like there’s no end in sight to the insatiable need. When the market was less mature five-plus years ago, it would take an average of more than 18 months to build a data center from purchasing the land to plugging in servers. However, in the last couple of years, the industry has greatly increased its ‘speed-to-market’ construction timeline.
Data centers have seen an explosive growth year-over-year and it looks like there’s no end in sight to the insatiable need
The reason is there are more developers (and capital) in the industry than ever before, a more modular design and construction approach, and a robust supply chain established in the marketplace. This has been great for data center developers and end users alike! The end users need more space than ever before, and as quickly as possible, to meet the global demand for technology. The developers have an opportunity to deliver faster, lease the space out to end users, and capture their return on capital quicker. The end users have been able to ‘react’ to their clients’ demands and needs by quickly procuring data center space ‘on demand’ in many major markets.
That said, as many have read in the news over the last six months, a SHIFT IS IN THE AIR IN THE SUPPLY CHAIN. As the world struggles with shortages and supply chain issues with steel, lumber, aluminum, copper, chips and more, this has affected all industries. The data center industry is unfortunately not isolated from global supply chain shortage as it relies on many of the above items to create and manufacture the infrastructure critical to build and run a data center.
All the major lead time equipment items are at least six weeks delayed due to labor and material shortages, and that’s for the major data center developers that have large buying power in the supply chain. Imagine the lead time impact on an end user who may buy one generator or five RPP’s a year? The industry is also seeing a double digit increase in commodity costs, and a five-to-10 percent increase in data center infrastructure costs. Labor is also increasingly more challenging to come by in the industry, an industry that has a growing labor need, and is a high paying sector.
SO, WHAT DOES THIS ALL MEAN for the data center space race? Well, it means that for the end users of data center space, strategic capacity planning is more critical than ever. In some instances, if they have not already, relying on an established third-party colocation provider with procurement power in the supply chain may be a strategy that should be strongly evaluated. Creating a road map around your data center facility needs and timing is paramount in the current environment we sit. Demand and growth, whether it’s in an owned and operated data center, a third-party colocation data center, or a hybrid cloud environment, continues on!
Forecasting your needs for the future is critical in staying ahead of this supply chain disruption, and any we may see in the future. If strategic capacity planning takes place, end users will be able to find smart ways to manage their IT facility needs and create room for flexibility to make sure their data centers are future proof from changing IT needs, demands, and supply chain issues. After all, I imagine Elon, Richard, and Jeff did A LOT of strategic planning before launching into their latest venture, make sure you are strategic in your data center planning to help your business be as prepared as possible for the future.