IIR Webinar: Growth in Data Centers 'Off the Charts'

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Researched by Industrial Info Resources (Sugar Land, Texas)--Data centers occupy a special place in industrial construction. The sector remains one of high growth, with a compound annual growth rate of 19% expected over the next five years, and most of the data center projects tracked by Industrial Info have been given a medium- to high-probability (70%-99%) of moving forward as planned. In a Wednesday webinar, David Pickering, Industrial Info's vice president of research for the Industrial Manufacturing Industry, discussed the trends being seen in data center construction and how these are playing out across the world.

"Growth for this sector is off the charts," said Pickering, "and there's no end in sight. The need for data centers continues to grow as the demand grows and we continue to become such an electronic society." Demand for data centers escalated during the first several months of the onset of the COVID-19 pandemic, as many people turned to working, shopping, learning and socializing at home. And the demand has stayed, escalating the need for continued resources.

One of the noticeable trends seen in data center construction over the past few years is a movement away from larger, mega projects, to smaller-sized data centers to service a particular region or a specialized purpose. However, appearances can be deceiving. Many of the big players in the online world such as Microsoft Corporation (NASDAQ:MSFT) (Redmond, Washington), Amazon.com Incorporated (NASDAQ:AMZN) (Seattle, Washington) and Google parent company Alphabet Incorporated (NASDAQ:GOOGL) (Mountain View, California) in North America have begun grassroot projects for one or two data halls and then follow these up with expansions to complete new buildings so that projects become a multi-phase, ongoing process lasting years.

Asia and North America remain the spending hotspots for data centers. About $15 billion of grassroot projects are on the cards this year for North America, along with about $16 billion of data center expansions. As could be expected because of their populations, India and China are the leading players in Asia, with more than $22 billion in data center projects planned this year for the two countries. While India is seeing almost three times the number of data center projects as China, India's overall investment is less, as smaller facilities are being built.

Europe ranks next behind North America and Asia for data center investment and is doing its best to strengthen its footprint in the sector. "Some of the highest-spending regions are the Nordic countries," said Pickering. "Primarily this is because these countries are geared environmentally toward data centers, which generate a lot of heat." Hence, data center developers are focusing on countries and regions that have a cooler climate. In cooler regions, there's not as heavy a need for energy to keep the facilities cooled, and it saves the companies money. Denmark leads Europe in total investment value for data center projects.

Data center construction in the Oceania region is dominated by Australia, where most construction is occurring near the big cities where the bulk of the population is.

Africa and Latin America are both hindered by a lack of existing infrastructure. In Africa, power infrastructure often is being built in conjunction with data centers to allow the power-hungry facilities to operate. While the infrastructure in Latin America is more established, power transmission and distribution remains a weak point. Both regions are dominated by smaller, regional players.

The lack of energy infrastructure in all regions is one of the key choke points in data center development. Less developed regions simply do not have the infrastructure in place, and Pickering said that demand growth for electric vehicles, bringing about increased demand for electricity and its transmission, could hinder data center growth in more developed regions. Pickering said, "The energy concerns are incredibly real. Data centers are energy hogs, which brings in environmental concerns as well. ... Some regions in the world are a little behind in their development, but they're working hard to catch up. ... During COVID, data centers really stepped up and showed us their value. Without data centers, none of us would have worked from home, none of our kids would have learned from home. There would have been much more of a societal collapse during the initial portions of COVID with people not having the capability to continue to do business and learn during those initial six to eight months." And the appreciation for data centers and their growth trend has remained firmly in place. "This is a sector that has continued growing and has a very, very bright future," said Pickering.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on LinkedIn.