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CRE Opinion

The Need for Speed is Fueling Record Data Center Demand

Cushman & Wakefield's Ali Greenwood says there is a major supply-demand imbalance in the sector, with labor shortages and supply chain issues slowing delivery of new product to market.
By Ali Greenwood |
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So everyone has seen the best movie in arguably a decade or more, right? Top Gun: Maverick? If not, please stop reading this article and immediately drive to the theater! The newest Top Gun film is incredible…the acting, the storyline, the graphics, the technology! One particularly interesting conundrum presents itself early in the film when Admiral Cain tells Maverick, “Your kind is heading for extinction,” questioning whether there is a future need for fighter pilots when artificial intelligence and technology are increasingly creeping into all aspects of our life, including modern warfare. Technology is pushing the boundaries more and more every day, but it feels to me in the last 12-24 months, we have truly entered Mach 10.  Technology is evolving so quickly and creating an unbelievable need for data center space and power. 

That’s where I come in, your friendly data center broker (geek). We have not seen the volume of data center demand and absorption ever, nor could we have predicted such an insatiable growth factor.  However, if you’ve tried to build, well, anything recently, you know that supply chain issues are very real and very disruptive.  

As the world struggles with labor 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 building and running a data center.

All the major lead time equipment items are at least six weeks to six months 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 two CRAH units a year. The industry is also seeing a double-digit increase in commodity costs and a 5-to-10% 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.

To say it bluntly, we are approaching a major supply-demand imbalance in our industry sector, with most major markets at sub-5% vacancy rates and net new supplies sitting at 18-36 months out.

So now what? Is it just all doom and gloom for the end users who need more and more data center space to support rendering critical items like the next 8K Top Gun film for our enjoyment? I think the key will be strategic planning, creativity, and research.  Second-generation data center space, even ones that were enterprise developed and owned, might take on yet another life in the future of data center availability and leasing. 

Previously end users have been laser-focused on purpose-built, brand-new, ground-up product, but for the next 18-36 months, I believe end users will need to revisit second and third-generation data center facilities and non-contiguous space options.  End users might need to review owned and operated portfolios for options to re-purpose and renovate these facilities to meet their future needs.  Operators and developers will need to look in their portfolios to find pending lease expirations and possible churn spaces to cobble together options for end users to continue to service their increasing demand. When the industry was able to bring supply online more readily to meet the demand, end users would get weekly calls from sales reps about new inventory opportunities coming online they could lease, but as those calls dwindle down due to lack of supply and announcements, end users will need to turn to seasoned professionals and industry veterans that can serve as their wingman in finding pockets of space to satisfy their increasing technology footprint needs and requirements.  Creating a road map around your data center facility needs and timing is paramount in the current environment in which we sit.

Mach 10 is a speed that instills both anxiety and excitement in most of us, but the data center industry has reached it, and with preparation, flexibility, and creativity, we can embrace this unprecedented level and buckle in for the ride!

Author

Ali Greenwood

Ali Greenwood

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