Data Centers: Recent Trends and the Role of AI

With Will Pender, Regional President of Adolfson & Peterson Construction Gulf States and Darian Reams, Director of Mission Critical Services

As the data center market continues to grow, Will Pender, Regional President of Adolfson & Peterson Construction Gulf States, recently sat down with Darian Reams, AP’s Director of Mission Critical Services, to discuss current trends and the possibilities for the future of data centers. They also discussed their recent attendance at the Data Center Anti-Conference (DCAC) in Austin, Texas.

1) As we enter Q4 of 2023, what is the current state of the data center market? How has it changed throughout 2023?

Darian Reams: Well, there’s no end in sight. We’re just continuing to see large campus builds and how artificial intelligence is driving larger hyper-scale data centers. In the conferences I’ve attended, people are building for AI, and I don’t think we understand the real impact of AI. It’ll be interesting to see how this goes. We slowed down a bit in Q2, and Q3 has been pretty steady. In Q4, I think it’s ramping back up as everybody’s starting to understand what they think AI is. You saw Meta stop construction on several data centers across the country to re-design for the AI impact.

Will Pender: I would echo what Darian says. I think the large hyper-scale folks are behind the AI curve. I think AI caught everybody by surprise, and now there is a rush to get as many hyper-scale projects as possible, and even colocation projects to market to meet the demand of what AI is going to mean to the world.

Darian Reams:  I agree. It was like when Meta closed down its job in Temple, which was like Q1/Q2 of 2023, to go into redesign for AI. The power densities required for AI are significantly higher, two to three times what it was before. Typically, in your colocation data centers, your kilowatts (kW) per rack are 50, and now we’re seeing up to 150 to 200 kW per rack. So, to meet those needs, the focus now is on the mechanical systems. How will we handle all this heat and everything that’s coming out of these high densities? To Will’s point, I think everybody’s geared back up, and they have kind of figured out what they need to do, and we are seeing what expectations are coming out of this. Everybody’s trying to hurry up and get to the market as quickly as possible. Especially in Texas right now, Dallas in particular, there is less than a 4% vacancy rate, meaning way more data centers are needed in the market to meet the supply and demand curve.

2) Can you speak specifically to the data center market here in Texas?

Darian Reams: At a recent Bisnow conference, I heard two large AI hyper-scale facilities are coming to Texas—one in Red Oak and one in Austin. I think you will continue to see data centers grow across the country. In Texas alone, you have Meta in Temple, Google in Midlothian, Compass in Red Oak. In addition to these sites, you have Skybox starting construction on a 600 Mw campus in Hutto and a further site in Lancaster.

Currently, Atlanta is the hottest data center market, while the Texas market is sliding into the No. 2, spot. I believe Texas is gradually going to become what we are currently seeing in Atlanta right now. The biggest struggle with all these large AI facilities is the shortage of power in a lot of bigger markets, i.e., Northern Virginia.  Everyone is trying to figure out solutions to meet the power needs out there by using hydrogen, solar, nuclear reactors, etc.

3) Has there been any change to data center construction demand throughout the year? Are there any specific differences in demand based on geography? Where are the opportunities? Are there markets that have slowed? If so, on either question, why?

Darian Reams: No, nothing in Texas has slowed. I think you’re going to see Texas continue to thrive. Between the areas south of Dallas and the Midlothian/Red Oak area, Austin, and San Antonio…  those areas will continue to flourish. Again, with the AI push, you have approximately four large data center providers based in Dallas, so you know they’re trying to get everything they can in the back door. Oregon was right up there for the longest time, and now it is slowing down slightly. The Virginia area is also slowing down. Atlanta is coming on hot and so is Texas, along with Mesa and Goodyear, Arizona. Probably one of the largest contracts that’s ever been done in a mission-critical field will actually take place in Texas.

Ohio has been a secondary/tertiary market, but it seems a lot more people are starting to go to that area because there’s good fiber. The other day, QTS announced they’re investing $1.5 billion in New Albany, Ohio. Some of these secondary/tertiary areas markets, like Ohio, are starting to get a little hot, too. There’s not enough supply for the demand right now with AI, so again, you’re seeing much larger power substations go in a lot more. People are constructing five-to-six-building campuses, which you don’t currently see. I know the Sky Box campus in Austin is over 1,000,000 square feet. It has not started yet, but generally, from a colocation perspective, people would never build like that. So now everybody’s funneling to the hyperscale. I think we’ll start seeing the colocation demand require different providers to step in because everybody’s going after big money associated with the hyperscale. You’ll see many more colocation providers start hitting the market.

4) In regard to the Data Center Anti-Conference (DCAC) in Austin, what was the most surprising solution or thing you learned or discovered at DCAC?

Will Pender: At DCAC, the big discussions were regarding power generation and that the grid just can’t keep up with what data centers need. So, there are a lot of different solutions out there. One of the panels I saw explained how they want to create self-contained nuclear plants on data center sites to allow the data centers to become their own utility company and produce their own energy. The big debate is that they may have the money to build it, but the regulatory environment is concerning. Getting through the government red tape to build on-site small nuclear power plants; that’s where they see the dollars. It’s not the technology; it’s the regulatory requirements they’re going to have to battle.

5) What are the key trends you are currently seeing? How do you think these trends will be in 2024?

Darian Reams: We are seeing a shift in cooling trends, especially the mechanical aspect. Everybody’s been focused on the power side of things, and now, with the higher densities, everybody’s taking a hard look at their mechanical systems and what they can do to meet power densities. They’re doing immersion cooling for the servers, closed loop in some areas like Phoenix. They’ve got water restrictions, so people are looking at air-cooled chillers and closed-loop systems. The biggest change you’ll see is the mechanical side of the data center industry changing to meet this higher power density. I imagine you’re going to see the industry double in 2024. I read a Cushman Wakefield article about the size of these data centers going into Texas. Generally, it’s a 100,000-square-foot build-out. The Sky Box data center in Hutto, which will start construction in Q4, will be almost 4 million square feet with 600 MW of power when it’s built out. Switch, in Round Rock, will have 2 million square feet of data hall and 185 MW of power. There’s a lot of power out there, and to Will’s point, how are these utility providers going to meet that demand? The colocation and hyper-scale providers will have to get creative on generating power for those sites with the small modular reactors and hydrogen power, etc.

6) What do you see 2024 bringing for data center construction?

Darian Reams: I think you’ll see many more people get into data center construction, honestly. They’re going to try to break into the market because, as I heard the other day, it’s a $50 billion per year industry. Last year, they said they were thinking $40 to $45 billion, but that’s just in the US alone. Tying in the European activity, it’s astronomical the amount of money currently funding construction. Because everybody’s so slammed with labor shortages, I think some of the general contractors that don’t normally do data centers are going to get into the market with a special niche, whether it’s colocation or smaller enterprise or something like that.

Will Pender: I hope with this demand Darian’s talking about and the need for the speed to market as data centers are so technical, that we figure out some innovative ways to get more efficient. Whether through robotics or different efficiencies and manpower, I think a lot of technical innovations are going to come out of the data center world that will impact construction and construction efficiencies as a whole.

Darian Reams:  That’s a great point, Will. You’ll start seeing a lot more prefabrication and modular construction. What can we do offsite in lieu of building it on-site? We’re already starting to see it with the UPS gear. Many of the hyperscalers are containerizing the UPS gear where it comes to the site in a container with all the UPS, switch gear and transfer switches, etc., prewired from the factory, and then it’s just plug-and-play once you get it to the data center. This saves a great amount of onsite labor hours with the wiring completed at the factory. In addition to the containerized UPS gear we are seeing a lot of underground duct banks, conduit runs and duct prefabrication done at the trade partners facility to help reduce onsite labor hours and improve quality. If I were to guess, electrical-wise, there are three or four jobs in Texas that probably have over 2,500 electricians. When I was in Temple, we were ramping up to 800 on that Meta site. The shortage of skilled labor is real and is going to get worse as more hyperscale data centers are built to accommodate the AI boom.

7) What is Adolfson & Peterson doing with data centers?

Will Pender: We’re all in on data centers 150%. We’ve focused on them in the past but are refocusing and broadening our view; we’re going all in from a national perspective. Darian’s done a great job of leading AP’s charge. The One AP theme is that every region has bought into our data center focus and has committed to our success by providing the personnel, the knowledge and the technical ability to build them. We’ve invested a lot of dollars and resources in the mission-critical space over the last year and a half, and we continue to see the fruits of our investment. All signs point up, and we are going 100 miles an hour!

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