Navigating the Perfect Storm of Unprecedented Data Center Demand and Constrained Supply

In this edition of Voices of the Industry, Chris Kincaid, Senior Vice President of Development at Stream Data Centers, shares his perspective on navigating today’s market dependencies, and delivering the capacity hyperscalers need via build-to-suit data center solutions.

Chris Kincaid, Senior Vice President of Development at Stream Data Centers

COVID-19 has been a perfect storm for the digital infrastructure industry. On one hand, data volumes skyrocketed to unprecedented levels as pandemic lockdowns drove massive increases in web conferencing, video streaming, and online gaming. As just a few examples: Zoom saw a 1900% increase in highest daily meeting participants during the first months of the pandemic. Peak traffic on the Amsterdam exchange broke the 8-Tbps barrier for the first time ever on March 30, 2020. Akamai CEO Tom Leighton said at the time, “I’ve been looking at traffic graphs for over 20 years now and I can’t recall seeing anything like this.”

All that traffic translates, of course, to huge increases in demand for data center capacity. In 2020, absorption rose 70% over 2019. In 2021 it was up another 44 percent over the previous year, according to JLL’s 2021 Year-End Data Center Outlook.

On the other hand, COVID-19 supply chain disruptions weakened the industry’s ability to keep up with such fast-growing demand. According to CBRE’s U.S. Real Estate Market Outlook 2022, “pandemic-related restrictions in Asia-Pacific, material shortages, and increased shipping delays to U.S. ports could delay new data center development and impact the refresh cycles of existing data centers.”

What’s old is cool again

The perfect storm will continue to intensify in 2022 and coming years as any excess capacity left gets absorbed. As a result, hyperscalers are relying more heavily on third parties for data center capacity. “Outsourcing is sharply increasing as major hyperscalers are scrambling to find enough data center capacity globally to host their significant incoming workload activity,” explained Credit Suisse analyst Sami Badri. In January of this year, Badri projected the share of new capacity that hyperscalers lease to grow from 50% to about 60%; just five months later, it is at least 75%.

How did we get to a place where build-to-suit is cool again?

Rich Miller put it well in a recent article: “The hyperscale operators are good at building data centers. But as their operations grow, their company-built campuses must also navigate a difficult construction environment, with shortages of both supplies and labor. That combination is prompting a greater reliance on developers specializing in data center construction.”

These will be data centers built to suit the specific and unique requirements of each hyperscaler. And they will be very, very big. “Available landsites in key data center markets have been limited due to competing industrial demand, power deployment constraints and supply chain issues for critical infrastructure,” according to the JLL report. “This has resulted in hyperscale users competing for data center space that can accommodate large-scale growth that was previously unheard of (i.e., 36+ MW requirements). There are now more 20+ MW requirements than there are 1 MW requirements.”

In a highly competitive development environment, this trend is evident for those of us developing data center campuses capable of meeting the large-scale demands. Not all data center providers can easily pivot from turnkey offerings, but we see one way to survive this perfect storm is to lean on a long history of delivering build-to-suit capacity that will, for the time being at least, augment a significant percentage of hyperscalers’ self-built capacity.

Build-to-suit can mean bespoke from the ground up, or within the confines of an existing facility, to suit a customer’s very particular requirements. We also understand the speed to market and scale constraints hyperscalers are facing, and that it’s often necessary to start with a standard form factor that can be configured to the customer’s specifications, in order to move fast and build big. In that way, build-to-suit becomes build-to-spec, which could mean configuring facilities to support a prescribed topology, or power distribution/striping plan. With highly configurable large-scale campuses, a spec form factor can more quickly accommodate our hyperscaler clients’ fit out needs in a shorter timeframe than what is achievable in a ground-up build-to-suit offering.

Bottom line

A 25% change in the share of capacity hyperscalers will rely on partners for, and the unprecedented size of that new demand, means the pressure is on for data center providers to deliver. If you are ready for it, delivering bespoke capacity for the nation’s most demanding users is what you already do best.

Chris Kincaid is Senior Vice President of Development at Stream Data Centers, which builds and operates for enterprises and hyperscale cloud providers – 24 data centers since 1999, with 90% of our capacity leased to the Fortune 100.