Why meeting data center demand is becoming a worldwide challenge
There’s an old saying that money is what makes the world go ‘round. However, to hear some IT professionals tell it, data center availability may soon join the ranks of the societally indispensable.
We do live in a world where the British government is investing in data center infrastructure while Texas is openly courting firms to set up shop in the state, not to mention the almost daily announcement of a new private investment in the data center space.
The world over, data center demand is rising, making it hard to find a single site without firm commitments.
“Suffice to say that the declining availability of data center space is not understated. The data center vacancy is declining year over year. It is at historic lows. Tier one markets will sit at sub 1% vacancy. In some places [it is] perilously little.”
Those are the words of Chris Opat, senior vice president of cloud operations at BackBlaze. He says that areas of the US where data centers have been centralized are very quickly being bought up.
“All but 1% of the build that’s scheduled for next year in Northern Virginia is under contract already,” he tells ITPro. “Of what they plan to build, 99% of it’s under contract, right? So, these are just cosmic circumstances that I don’t think anybody could have foreseen, but they are real.”
To that end, a CBRE report from August last year noted that, despite a 10% jump in supply in primary markets – places like Dallas-Fort Worth, Northern Virginia, and Chicago – the vacancy rate in those data centers over the first half of the year dropped to a never before seen low of 2.8%, half a percent lower than the same period the year before.
At the same time, amid reports that Microsoft was cancelling leases on the equivalent of two data centers, there has been concern in some circles that Microsoft’s decision to redistribute their investment was an indicator of things to come. Bina Khimani, a co-founder of Kinesis Cloud and veteran of AWS and IBM, disagrees with that assessment.
“This Microsoft news is, I think, like a drop in the bucket,” Khimani tells ITPro. “It’s not a big thing…sometimes you are shifting your strategic alignment.”
What she does see is a continued need to focus on efficiency to increase the availability of capacity at the same time as the industry recognizes a need to expand and grow into new geographical areas.
“Now you see [a] $2 billion investment in Utah, 400 acre data center. You see data center investments in [the] Nordics because it has more access to renewable energy. You see data center industry growing very rapidly in India.
Khimani adds that innovative approaches to powering these data centers and reducing the load on already existing infrastructure are a growing part of the sectoral picture. The industry is working hard to figure out what it means to best use and build infrastructure, she tells ITPro.
“A lot of money is flowing into it, but it’s not always flowing in a smart way. People are still experimenting.”
That forward focus on efficiency bears out in the data. In a November 2024 report Gartner estimated that the capacity available worldwide will more than double by 2028 compared to five years earlier. That equates to an increase of approximately one and a half zettabytes. At the same time, with advancements in optimization and efficiency – some of which is evolving thanks to AI technology – the authors expect the capacity growth rate to drop from 51% in 2024 to 9% in 2028.
Part of the challenge, especially for comparatively small companies, is that hyperscalers like Google and AWS dominate the market. That same Gartner analysis estimates that hyperscalers will be utilising 70% of available capacity within the next three years. A similarly timed report from McKinsey and Company found hyperscaler cloud service providers (CSPs) are driving most of the rising data center demand, with 60-65% of AI workloads expected to be hosted on CSP and hyperscaler infrastructure by 2030.
However, the whole story isn’t just about which data centers are needed or where they’ll be located. Herb Hogue, chief technology officer at Myriad360, says that the clamoring for infrastructure is a case of both hyperscalers dominating the market and companies wanting to make sure they have capacity when they need it down the line.
“There’s a bit of a land grab around building these facilities, not because of the facility so much, but because of the power availability,” he explains. “And power availability is driving a lot of the necessity to consume, because if you don’t get it, and it’s finite, which it kind of is, you’re not going to have it later…I think the demand, at least for the next 18 to 24 months, is sustained. Can we, any of us, know further than that? I don’t think so.”
The race for efficiency
In the current moment, with private and governmental investment ballooning, it can feel as if the data center industry—particularly as AI drives demand—is moving at a breakneck speed.
Pascal Jaillon, SVP of product in the US for OVHcloud, who spent the early part of his career in France before moving to the US, says that part of the reason the American market moves quickly is because of a lower level of regulation. One area in which he sees that most vividly is in how American labor law makes business reorganization easier.
“The hiring and firing is actually much [more] loose here and allows companies to grow very quickly when there is demand, and to scale back when this demand disappears, where in Europe there is always a bit of latency… that is put in place by those regulations,” he explains.
Jaillon said cloud demand continues to grow, with the example of remote work becoming the norm during the pandemic, and that AI would feed into this trend.
Looking a little into the past, Opat sees similarities between the current lack of availability and the challenges created by the Bitcoin mining boom of just a few years ago.
The staffing shortage
To add more to the pile of problems for prognosticators and business owners across a myriad of supply chains, Hogue sees another issue at play: a low number of skilled workers for data centers to bring new availability to market.
“I think the one thing that gets missed in this hyper cycle of investment is the byproduct of it is it’s requiring even more high level, highly skilled people in multiple domains. Whether that be next generation construction, next generation fab building, next generation operation skills or interactive skills.
“You may have a supercar sitting out there in the driveway, but if you don’t know how to drive a five speed, it’s useless to you.”
So, while there is heavy focus on increasing supply to meet the expanding demands of the moment, there’s also a lack of skilled labour, a set of markets of differing sizes, a power problem, and a construction build-time problem. This is all without mentioning the environmental concerns associated with data centers and the immense amount of water the sites consume to serve workloads such as AI models.
How these seventeen problems in a trenchcoat will end up being solved is yet to be determined. What is clear is that there is a whole industry keen to find out what those solutions might be.
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