North America | July 15, 2024

Datacenter Construction Challenges Amid Surging Demand

Datacenter construction has long been recognized as a strong sector, yet its true magnitude may still be underestimated.

 

Demand is surging in the datacenter construction industry due to increasing reliance on digital infrastructure and the growing need for cloud-based services. However, this rapid growth is not without its challenges, as the sector faces supply chain disruptions and power distribution constraints.

Robust Demand Fueling Datacenter Construction

Datacenter construction has seen an increase in institutional investment and solid market fundamentals. This optimism is reflected in the statements of industry leaders, such as MasTec and Fluor, who are looking to expand their footprint in the sector.

The CBRE global datacenter investor intentions survey further highlights the strong demand, with pre-leasing rates of over 83% in various markets. Even in regions with an 18% increase in year-over-year inventory, the vacancy rate has dropped to just 0.9%, indicating the impressive rate at which demand is meeting supply.

Challenges Impacting Project Delivery

Despite the robust demand, the datacenter construction sector is facing several challenges:

  • Power Distribution Constraints: The ability to procure critical electrical components, such as transformers, switches, generators, and power distribution units, is a significant bottleneck. This issue is impacting the transmission, distribution, and electrical needs of datacenter projects.
  • Supply Chain Delays: Delays in the delivery of essential equipment, like generators and power supply systems, are causing setbacks in the construction of datacenters. Companies like Oracle and Tesla have experienced these delays, leading to extended project timelines.

Innovative Solutions to Mitigate Delays

To address these challenges, construction professionals are exploring innovative solutions to manage supply chain disruptions and ensure timely project delivery. These include:

  • Alternative Supply Chains: Exploring alternative supply chains and collaborating closely with suppliers and stakeholders to secure the necessary equipment.
  • Advanced Project Management: Investing in advanced project management technologies to enhance visibility and control over the construction process.
  • Proactive Equipment Procurement: Some datacenter operators are provisioning equipment in advance, securing their needs well before the actual deployment, to mitigate delays.

Opportunities for Construction Firms

Despite the challenges, the datacenter construction sector presents substantial opportunities. The strong investor interest, particularly in opportunistic and value-add segments, signals a favorable market for firms specializing in high-yield projects.

To capitalize on these opportunities, construction companies need to focus on recruiting and retaining talent with a successful track record in deploying and managing datacenter projects. The specialized and risk-averse nature of the industry requires a high level of expertise and experience from construction professionals.

Source: Construction Dive