Datacenter boom going bust over labor, materials shortages

Two years on and there's still not enough stuff to go around--or people

The US datacenter construction boom may be faltering and the reasons are not difficult to predict. The same supply shortages, price hikes and a lack of labor that have characterized not-quite-post-pandemic life is a risk for DC builders, too.

Construction consultancy firm Turton Bond's Darren Flood authored the report making that argument. Flood said that the need for datacenters is stronger than ever, but that  "COVID-19 variants, changing restrictions, constrained supply chains and strong demand create an unpredictable market."

All of this is hitting after the datacenter real estate market exploded into its own boom times, with unprecedented investments in suitable building sites.

Before that market instability, datacenter growth was through the roof, CNBC reported last year. One report said the datacenter market was worth $206 billion in 2021, with a compound annual growth rate of 10.2 percent. Datacenter land was also the highest performing real estate investment trust category in 2020, and absorption (i.e., datacenter occupancy) rates in the US increased 44.3 percent YoY in 2021, which was on top of a more than 70 percent increase in 2021.

One of the most present reminders of an unpredictable market is inflation, which the US Bureau of Labor Statistics (BLS) puts at 8.3 percent for April, the most recent month for which data is available. Flood expects inflation rates to continue to rise, but said they should bottom out at around 4 percent by late 2022. 

Inflation is hammering materials costs. Flood cites data from the BLS that found a 25 percent overall increase in material costs in 2021, and he doesn't think that will ease until "Q3 onwards."

Concrete, gypsum, HVAC equipment, EIFS systems, lighting controls, and switchgear and controls all increased in price through the end of 2021 with the biggest increase in the price of steel, which was up 12 percent in the last quarter, according to Flood's findings. 

In addition to overall inflation, the report says many of the materials used to build datacenters is delayed by months due to ongoing supply chain issues. Those waiting on copper wire are looking 15 to 17 weeks, steel won't come for 31 to 33 weeks, aluminum will take 36 to 38 and electrical equipment will take nearly a year. 

Labor shortages are also expected to continue. Flood cites a lack of skilled workers, high rates of retirement in the construction industry, vaccine mandates and "national progression of the workforce." The report makes no mention of employees quitting over pay.

Further complicating this labor shortage is that many datacenters are built in the middle of nowhere, offering few laborers even in the best of times. Getting around that will require the right incentives to get workers to temporarily relocate, Flood said. 

Those issues haven't constrained some of tech's biggest names, though: Amazon announced plans recently to build new datacenters in Santa Clara, California, and last month said it plans to build five more in rural Oregon to the tune of $12 billion. Attempts to construct similar data enters on the east coast have been met with resistance from locals.

Flood said that near-term successful projects will be those focusing on buying materials and equipment now, even though it may not be needed for months. "Early procurements, off-site warehouse storage of key equipment & locking in prices before quarterly increases is the current recipe for successful procurement in a datacenter development.". ®

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