Dive brief:
- Data center construction continues to grow in the U.S. as major hyperscalers add more massive projects to their pipelines this year.
- Some examples include Oracle has recently been introduced $10 billion data center expansion plan and Google announcements to open a new one Billion dollar data center in Kansas City, Missouri, as well as in $576 million data center in Cedar Rapids, Iowa. Meta recently selected Minneapolis-based Mortenson to build its new $800 million data center in Rosemount, Minnesota.
- Industry watchers say demand should continue to rise as companies strive to automate processes and workflows. Digital transformation is accelerating the need for processing power, storage and cloud services, thus providing a strong impetus for sustained data center construction, according to a CBRE report March 2024 in data centers.
Diving knowledge:
Primary markets recorded an all-time high of 3,077.8 megawatts of data center construction in the second half of 2023, up 46% year-on-year, according to CBRE.
Construction increased the most in the Atlanta region, with 211% growth to 732.6 megawatts under construction. For example, Microsoft recently paid 6 million dollars to acquire nearly 21 hectares near its existing Palmetto data center in Fulton County, Georgia, according to The Atlanta Journal-Constitution.
In addition, pre-leasing activity, which serves as an indicator of the balance between demand and supply, is at a strong 83%, according to CBRE.
Construction, pre-leasing in primary markets reached an all-time high
Activity, measured in megawatts, has increased over the past 3 years.
Barriers in the supply chain
However, supply chain issues continue to cause headaches in data center construction.
Problems with the procurement of generators, power supply systems, electrical appliances and power distribution units often push back the construction timeline of these projects. Construction input prices recently rose 1.4% in February, mainly due to persistent inflation, according to Associated Builders and Contractors.
But despite delays in energy availability and rising construction costs, construction activity in primary markets should still reach a new all-time high of more than 2,500 megawatts by 2024, according to CBRE.
Larry Ellison, the company’s president and chief technology officer at Austin, Texas-based tech giant Oracle, said its data center projects often “take longer to build than we would like,” but asserted that the company continues to improve its construction efficiency in these new projects. .
Growing data center construction market
The global AI software market will grow from $64 billion by 2022 to nearly $251 billion by 2027a compound annual growth rate of 31.4%, according to International Data Corp.
This will spur new markets in the United States, such as Wisconsin and Indiana, to host large data center campuses. According to CBRE, these states will push to bring these projects due to tax incentives, advances in renewable energy, electricity transmission and distribution infrastructure, and affordable energy supply.
For example, Meta selected New York City-based Turner Construction to build one $800 million data center campus in Jeffersonville, Indiana. The project falls under a data center sales tax exemption in the state, according to the Indiana Economic Development Corp.
Elsewhere, Chicago-based Walsh Construction recently began work Microsoft’s $1 billion data center in Mount Pleasant, Wisconsin. This project is eligible for an Electronics and Information Technology Manufacturing Zone designation, a Wisconsin program that provides sales and use tax exemption for construction works located within that zone, according to the Racine County Economic Development Corporation.
