Launching the Future: The Accelerating Pace of Data Centre Development

February 19, 2024

As the need for data centre capacity is expected to see a tenfold increase from 2018 to 2025, there’s a growing opportunity for builders to capitalise on the accelerating pace of data centre development, either developing new facilities or enhancing existing ones.

The pandemic-induced shifts in behaviour have spotlighted the critical role of data centres. Activities like web surfing, online shopping, streaming, video conferencing, and social media usage all rely on the processing power of vast computer networks housed within data centres.

The last two years have witnessed an unprecedented boom in digital service usage, pushing the demand for data centre capacity to an all-time high. Since 2010, the global count of internet users has doubled, the International Energy Agency notes, with DataReportal’s recent findings showing a current global internet populace of 4.95 billion.

Active social media engagements have also seen a 10% increase annually, reaching 4.62 billion. Furthermore, Aecom forecasts suggest that data consumption will climb to ten times its 2018 levels by 2025.

Record Growth Trends

The observed growth trends underscore why the global construction market for data centres (DCs) reached unprecedented levels in 2021, as highlighted in a March report by JLL. However, the report also mentions that the timely completion of many projects was hindered by supply chain disruptions and pandemic-related delays.

The surge in development has been predominantly in the US, whereas Europe saw a downturn in its DC construction pipeline. The capacity of these projects is gauged in megawatts, indicative of the maximum power utilised by operating server racks, with Europe’s figures dropping from 418MW at the end of 2020 to 275MW a year later.

The UK mirrors this trend, with London’s construction capacity decreasing from 118MW at the end of 2020 to 50MW by the end of 2021. Yet, the sector is still on an upward trajectory, with London adding 110MW of capacity last year, as per JLL. Turner & Townsend forecasts a higher demand for DC construction in the UK for 2022 compared to 2021.

Contractors remain optimistic about future prospects. Philip Cruise, a pre-construction manager for data centres at John Sisk & Son, describes the current growth as “unprecedented” and the demand as the “healthiest it has ever been.” With two decades of experience in DC projects, Sisk has expanded its operations beyond its Dublin base to the Nordics, including Sweden, Finland, and Denmark, leveraging the cooler climates for efficient computer cooling.

Despite the promising outlook, Sisk is cautious about overextending. Cruise emphasises a strategic approach to bidding, aiming to avoid commitments the company cannot fulfil.

Growing Market Demand

ISG stands as a prominent figure in the arena of data centre development and construction, boasting a portfolio of projects valued at approximately £3bn over the last ten years. Warren Pickance, the managing director of data centres at ISG, notes, “There’s a rising demand for data centres from a diverse range of clients, including both established names and new entrants, leading to significant growth in our core customer segment.”

However, similar to Sisk, ISG is adopting a careful stance when it comes to project bids. “Our selection process is becoming more discerning to ensure that our growth remains robust and flexible, allowing us to maintain our commitment to excellence,” explains Pickance.

The demand for data centres isn’t limited to well-known e-commerce entities; it also extends to smaller co-location service providers, or colos, like Equinix, which lease space to various clients.

Skanska, with 12 years of experience in data centre development and construction, including building, outfitting, and updating facilities, is witnessing a surge in colocation projects. Katy Dowding, an executive vice-president at Skanska, remarks, “The real growth is seen in colocation projects, as companies seek to achieve economies of scale by consolidating their operations. As the commercial models evolve, colocation will become more accessible for them.”

Edge Data Centres Emerging

The conventional perception of the data centre (DC) market involves large, warehouse-style buildings, yet there’s a growing interest in developing smaller, more localised facilities to meet direct user needs, known as ‘edge’ data centres. Despite the buzz around the edge concept over the last five years, the construction of such facilities is still in the early stages.

Pickance observes, “So far, we’ve encountered limited opportunities in the edge sector,” though he anticipates a rise in demand within the next few years, especially from banks aiming to enhance their online services.

Dom Puch, the UK data centre lead at Turner & Townsend, also expects an increase in demand for edge centres, crediting the proliferation of 5G technology as a catalyst. “With most new phones being 5G ready, faster communication will necessitate closer proximity to servers,” he explains.

“The market for these opportunities moves swiftly, necessitating quick responses,” adds Dowding, Skanska. Scotland is poised to become a favourable location for increased data centre development, according to Dowding. “Considering its offshore wind power sources and cooler climate, which aid in carbon efficiency, Scotland is an area we’re keeping an eye on.”

Puch highlights that beyond London’s esteemed region, other centres of activity are beginning to form. For instance, South Wales is gaining attention, with reports of Microsoft planning to establish a data centre at a former radiator factory site in Newport.

The Importance of Location

Some experts express scepticism about the viability of further data centre development in distant locations. “There are limitations within the network, and proximity to major hubs like London, Amsterdam, Frankfurt, or Dublin remains crucial,” Cruise points out. “Access to robust network infrastructure that connects to a primary facility is essential.”

Beyond just constructing new sites, there lies potential in revamping and enhancing current facilities to keep pace with the rapid evolution of computer technology.

Dowding emphasises the need to “reconfigure the existing space to increase its functionality.”

Puch concurs, noting, “Upgrading outdated, inefficient equipment with state-of-the-art technology presents a significant opportunity.”

When a contract for either a new build or a retrofit is won, the approach to execution is critical. “Market demands can arise swiftly, requiring prompt action,” Dowding remarks. The process of executing these projects is notably rigorous.

“The timeline for these projects is compressed,” Pickance observes. “The span from winning a project to pre-construction and then to completion can take as little as two years. It’s a challenging field but rewarding, given the constant technological innovations we’re involved with.”

Challenges in the Sector

While the data centre sector offers abundant opportunities in a dynamic and evolving market, several key challenges persist. Among these, recruiting a skilled workforce for new projects stands out as a primary concern for contractors.

Cruise from Sisk acknowledges having a competent team for current projects but highlights the difficulty in hiring for new initiatives. “The competition for talent is fierce, with demand outstripping supply, leading to a situation where securing skilled personnel is challenging due to better opportunities elsewhere. This competition is inflating salaries to levels that may not be sustainable. We observe a trend of professionals willing to move across Europe for projects, showing little allegiance to any single company. This recruitment challenge is the most significant we face.”

“Steel prices were already volatile even before the Ukraine conflict,” notes Dom Puch from Turner & Townsend.

To address the talent gap, Pickance from ISG mentions looking beyond the data centre sector, targeting individuals with experience in power generation or defence. “We’ve successfully recruited from these areas,” he states.

ISG also invests in developing its talent pool, including graduates and apprentices, through specialised data centre training programmes. However, as Cruise notes, “Should all proposed projects proceed, the industry would face a severe shortage of necessary resources.”

Material shortages present another obstacle, with Turner & Townsend’s survey revealing that 87% of participants experienced delays and cost increases due to these shortages, exacerbated by Brexit, COVID-19, and the Ukraine conflict.

The fluctuation in steel prices, a critical concern raised by Puch, and extended lead times for essential equipment like generators and switchgear, as pointed out by Dowding, further complicate matters. Additionally, the industry is grappling with the global semiconductor shortage, affecting various sectors.

Environmental Concerns

The most significant challenge facing the data centre (DC) industry is its environmental impact and the ensuing political repercussions. The International Energy Agency’s 2021 report highlights that data centres are responsible for approximately 1% of the world’s electricity usage and contribute to 0.3% of global CO2 emissions.

As Turner & Townsend emphasised in its latest cost index survey, “With the climate crisis intensifying, these energy-intensive facilities are under increasing pressure to adapt. The evolving regulations around achieving net-zero emissions present new challenges, alongside rising expectations from clients and consumers.”

The energy consumption of data centres is twofold: it includes the electricity required to power the servers and the cooling systems needed to manage their heat output. Major tech companies are conscious of the potential backlash from consumers and have pledged to minimise their environmental impact. For example, Google, Microsoft, and Equinix have committed to the Climate Neutral Data Centre Pact.

Nonetheless, environmental concerns are beginning to influence the DC construction agenda. Meta, Facebook’s parent company, has permanently cancelled plans for a new 166ha data centre in the Netherlands due to political resistance and environmentalist protests. Apple has also faced a prolonged struggle to construct an €850m facility in Galway, Ireland.

Addressing the carbon footprint of data centres is challenging, as Cruise acknowledges. “There’s been negative publicity surrounding data centres, partly due to misunderstandings about their energy use. It’s important to educate people on the necessity of data and the efforts being made to construct and operate these facilities in an eco-friendlier manner.”

Sisk is committed to sustainability, aiming for net-zero emissions by 2030. “Clients are keen to understand our sustainability strategy and our actions to reduce emissions,” Cruise explains. “The importance of a company’s sustainability narrative is only surpassed by its approach to health and safety.”

Critical Juncture

Puch points out the potential for a critical juncture where the energy demands of servers may become unsustainable. “Addressing this will require comprehensive innovation,” he notes, “spanning the entire spectrum from their operation and cooling to ensuring their reliability.”

Another significant obstacle is the limited availability of land. “During the pandemic, London has seen unprecedented spikes in land prices,” as reported in JLL’s recent data centre analysis.

Yet, despite these hurdles, the outlook within the industry remains optimistic. “We anticipate continued expansion over the next five to seven years,” Cruise comments, attributing this growth to the rising demand for cloud services which, in turn, fueling data centre development. ISG is also forecasting growth in key European cities like Paris, Amsterdam, and Frankfurt. The opportunities for contractors are vast. However, Cruise cautions, “Avoid overextending. The industry faces considerable pressures on both time and costs.”

Published on 19-02-2024