The demand for new data centers is as hot as ever, but with that comes “plenty of challenges and uncertainties,” according to the 2022 outlook for data center construction from Turton Bond, a construction consultant firm. Like every other sector of construction, these challenges to data center construction include supply chain issues, skilled labor shortages, inflation and rising material costs.
Long lead times and supply chain issues
Practically every industry has been impacted by supply chain disruptions, and within the data center construction sector, uncertainty in the current construction climate is creating “a unique challenge” for projects.
“The data center market has been affected by pandemic-related restrictions in regard to Asia-Pacific material shortages and shipping delays,” Flood wrote. “Delays are increasing pressure on schedules and driving construction costs higher.”
Data center operators who focus on early procurement of key material and equipment, including switchgear, uninterruptible power supply (UPS) systems, chillers and generators, are finding success in a difficult market by building good relationships with vendors to guarantee delivery, according to Flood. “Early procurements, off-site warehouse storage of key equipment and locking in prices before quarterly increases is the current recipe for successful procurement in a data center development,” he wrote.
With an increasing demand for cloud computers, IT services, cybersecurity and more, the requirement for support from data centers is “stronger than ever.”
“As the pandemic becomes further understood, alongside wider rollouts and adoption of vaccine programs, construction volume and progress is beginning to increase and potentially return to a pre-pandemic climate,” he wrote. “Clearly COVID-19 variants, changing restrictions, constrained supply chains and strong demand creates an unpredictable market.”
Skilled labor shortages
Last year, a shortage of skilled labor was top of mind, and labor shortages are expected to continue throughout 2022. Driving this lack of skilled workers is people over 55 leaving the construction industry or deciding to take early retirement, vaccine mandates and national progression of the workforce, according to Flood.
The rural locations for many data center projects also pose a unique barrier to finding enough workers to complete projects, said Flood. “This creates a need to incentivize subcontractors to [come to] the area to complete the required work. Overall, the outlook for availability of trades is optimistic in 2022 but with a strong pipeline of construction works, a labor squeeze is likely to increase construction costs.”
“Inflation rates have reached levels that have not been seen since the 1980s and with many other challenges including a shortage of skilled labor, supply chain issues and hikes in material pricing at unprecedented levels,” wrote Darren Flood, director of Turton Bond’s San Francisco office.
The U.S. annual inflation rate peaked in March at 8.5%, then slowed to 8.3% in April. Turton Bond anticipates a slow decline throughout the year, bottoming out at about 4% based on current market trends.
Material cost increases
In 2021, material prices overall rose by nearly 25%, according to the U.S. Bureau of Labor Statistics, and most material prices have continued to increase this year. Some materials that are key components of data center construction have risen even higher; for example, the cost of steel has risen 50% over the last 12 months, according to Supply Chain Dive.
“We believe material prices will continue to increase up until at least Q3 2022 and potentially start to show signs of decreasing from Q3 onwards,” Flood wrote.