Skip to content

Data center boom collapsing due to shortage of labor and materials, report says

US construction company Turton Bond released a data center market report earlier this month which states that demand for data center construction remains stronger than ever. However, she adds that labour, supply chain and inflation issues could dampen the pace of construction in the area. The price of steel, a major component of data center construction, is believed to have risen just under 50% in the past 12 months, although it is down from recent highs. Other essential inputs would also increase.

The overall outlook for data center construction in 2022 will come with many challenges and uncertainties, says the report from the New York-based real estate consultant. Already anticipated towards the end of 2019, the chip shortage actually took hold in 2020 in the midst of the Covid-19 pandemic and led to major changes for computer hardware manufacturers and in the computer market. consumer electronics. And to make matters worse, there has been a shortage of talent in several areas, including IT. Two years later, there are still not enough materials or personnel for all.

Turton Bond’s report assesses how these various elements individually affect the data center construction subsector. Relying mainly on the data available in the United States, the real estate consultant indicates that the boom in the construction of data centers in the United States could run out of steam, and the reasons are not difficult to predict. Supply shortages, price hikes and labor shortages that have characterized the not-yet-post-pandemic period also pose a risk to data center builders, according to the report.

Darren Flood of Turton Bond said the need for data centers is greater than ever, but the vagaries of Covid-19, changing restrictions, limited supply chains and high demand are creating an unpredictable market. All this hits after the data center real estate market exploded in its own boom period, he said, with unprecedented investment in suitable construction sites. For example, in April 2021, Microsoft announced that it plans to build 50 to 100 new data centers each year to meet its growing needs.

Flood said his firm’s data center customers always want to build. They said they never built this rhythm, and that this rhythm will only increase,” he said. Turton Bond has worked with Google and Facebook in the past. Google plans to invest $9.5 billion in offices and data centers in the United States this year, while Meta, Facebook’s parent company, recently launched two more data centers in Temple, Texas, and Kansas City, Missouri. The data center market was worth approximately $206 billion in 2021.

This represents a compound annual growth rate of 10.2%. Data center land was also the best performing real estate investment fund category in 2020, and absorption rates (i.e. data center occupancy) in the US increased by 44.3% annually in 2021, adding to an increase of more than 70% in 2021. Additionally, according to a report released by Synergy Research Group in the first quarter of 2022, data center hardware sales increased by 10% compared to 2020. But Turton Bond thinks that growth will slow down.

One of the constraints to the growth of the data center construction subsector is inflation. According to the US Bureau of Labor Statistics (BLS), it is 8.3% for April, the most recent month for which data is available. Flood expects inflation rates to continue to rise, but he said they should bottom out at around 4% by the end of 2022. Inflation is hitting material costs. He cites BLS data that shows an overall 25% increase in the cost of materials in 2021, and he doesn’t think that rise will subside until “the third quarter.”

Concrete, plaster, heating, ventilation and air conditioning equipment, EIFS systems, lighting controls, switchgear and controls have all seen price increases through the end of 2021. According to Turton Bond, the strongest rise is in steel, which rose 12% in the last quarter. In addition to general inflation, the Turton Bond report indicates that many materials used to build data centers are delayed by months due to ongoing supply chain issues.

For example, the construction consultant explains that those waiting for copper wire will have to wait 15-17 weeks, steel will not be delivered for 31-33 weeks, aluminum will take 36-38 weeks, and electrical equipment almost a year. Labor shortages are also expected to continue. Flood cites the lack of skilled workers, the high rate of retirements in the construction sector, vaccination mandates and the “national progression of the workforce”. The report makes no mention of employees quitting for salary reasons.

Indeed, over the past two years, low wages, increased workloads, etc., and work pressures have led to what experts have called “the great resignation.” The phenomenon was observed above all in the United States, where millions of workers left their jobs in search of better opportunities. It is estimated that in the United States alone, more than 24 million workers would have left their jobs between April and September 2021. The coronavirus pandemic is also cited as an accelerator of this bleeding in talent retention.

Flood believes that this labor shortage is further complicated by the fact that many data centers are built in the middle of nowhere, offering little labor even in the best times. Getting around this problem will require putting in place the right incentives to get workers to move temporarily,” Flood said. This is already observed. A report earlier this year found that, faced with a shortage of skilled workers, companies are now offering candidates money to interview and extra perks if they stay.

Separately, the Turton Bond report notes that these issues haven’t held back some of the biggest names in tech: Amazon recently announced plans to build new data centers in Santa Clara, California, and said the month last that he planned to build five more in rural Oregon at a cost of $12 billion. Attempts to build similar data centers on the east coast have met with resistance from residents.

According to Flood, the projects that will succeed in the short term will be those that focus on buying materials and equipment now, even if they won’t be needed for months. “Early purchasing, storing key equipment offsite, and pricing ahead of quarterly increases are the current recipe for successful data center development procurement,” the report said.

Source: Turton Bond

And you?

What is your opinion on the subject?

See as well

The global chip shortage could soon turn into an oversupply crisis, only companies investing in advanced semiconductors will see their margins increase

Microsoft plans to build 50,100 new data centers each year and offers an immersive experience to show how a typical Microsoft data center works

Tech companies are facing a new recruiting crisis and are now offering candidates money for interviews, plus perks if they take the job

Half of Cloud Data Centers Will Deploy AI-Enabled Robots by 2025 to Ease Staff Shortage Issues, Gartner Forecasts

Skills shortage is the biggest barrier to adoption of emerging technologies, ahead of implementation costs and security risks, according to Gartner

Leave a Reply

Your email address will not be published.