Is big data running out of space?

• STOP PRESS: At the end of January a Chinese developer released a GenAI model delivering comparable performance to current 'frontier' models, but apparently requiring a small fraction of the 'compute' and energy resources. The release has seriously disrupted stock market valuations and projections of data center demand. The result may be to delay the expected shortfall.

Despite the proliferation of data centers on both sides of the Atlantic, capacity is failing to keep up with demand. The result is increased costs for the sought-after space and slower implementation of new projects.

There are many factors constraining the continued growth of data centers, but are there solutions? We look at the obstacles to further data center growth and whether they can be overcome.

The increased demand for computing power

Supply and demand determine the price of nearly everything and this is also true of space at a data center — and demand is booming. In the first half of 2024, data center vacancies hit a record low. And if you are thinking you may be able to book space in advance, think again.

CBRE’s H1 2024 North America Data Center Trends reports that vacancy rates for primary markets fell to 2.8% in the first half of last year. That is down from 3.3% in 2023. Moreover, almost 80% of more than 3.87 gigawatts under construction in primary markets were pre-leased - i.e. already booked.

McKinsey reports, “Our analysis of current trends suggests that global demand for data center capacity could rise at an annual rate of between 19 and 22 percent from 2023 to 2030 to reach an annual demand of 171 to 219 gigawatts (GW).”

Why is demand booming? The answer to that question is the same as so many others: Artificial intelligence (AI). Generative AI and the rush for every app and device to include it in some form means a rush for data center space is getting worse. FacilitiesDive reports, “Occupiers will be forced to prelease space between two and four years ahead of completion to meet their future data center requirements, with power delivery timelines expected to increase further…”

The truth is that data centers are still being built at an almost alarming rate. CBRE reports, “Under-construction activity in primary markets hit a record-high 3,871.8 MW, up by 69% from a year earlier.” Atlanta is a hotbed, as “under-construction activity increased by 76% year-over-year to 1,289.1 MW.” Over in Texas, CBRE says Austin and San Antonio’s combined under-construction activity more than quadrupled from the previous year. Despite this flurry of activity, it’s not enough to keep up with demand.

The situation is similar in Europe. Reuters reports, “Although capacity in second tier markets such as Berlin, Milan, Zurich and Warsaw is expected to expand by more than 10% this year, vacancy rates there are falling too.” And this is not just a 2024 problem. Back in 2023, The Register reported that, according to CBRE, an additional 601 MW of capacity was added “across the 14 largest markets in Europe last year, but only 561 MW of new capacity was added during the twelve months.” As such, it was the second time in five years that demand outpaced supply — and the problem is predicted to worsen.

The result of all of this is rising prices. “The average monthly asking rate for a 250- to 500-kilowatt (kW) requirement across primary markets increased by 7% in H1 2024 to $174.06 per kW/month,” according to CBRE’s findings. Typically, where there is money to be made, solutions emerge. However, there are some very real limiting factors for data centers.

The factors limiting data center growth

While many factors limit the growth of data centers, one is very straightforward: land. Finding places to put data centers is getting more complex.

The Financial Times reports, “Nearly two-thirds of the people involved in securing US industrial sites cited their scarcity as the top factor impeding new projects, in a 2024 survey by the Site Selector’s Guild. And 87 per cent of respondents said resource shortages — including a lack of land, labour and utilities — had affected or compromised project timelines.”

The problems caused by lack of space are compounded by the enormous appetite of data centers for power. Power production and the infrastructure needed to support it are not keeping up with the new demands of data centers. According to Gartner predictions, the result is that “40% of existing AI data centers will be operationally constrained by power availability by 2027.”

For tech companies, the situation is dire. In 2024, Microsoft made headlines after striking a 20-year deal to purchase all the power generated at Pennsylvania’s Three Mile Island, a nuclear facility best known for a partial meltdown in 1979. The facility’s working reactor shut down in 2019 but is being booted back up to help Microsoft meet its power demands.

It’s easy to see a world in which the problem of finding sites for data centers is worsened as they compete with the necessary power production and distribution facilities for space. So, is there a way out of this problem?

High-rise or nuclear? The future of data centers

As tech companies have tried to move their data centers closer to urban hubs of tech activity — rather than in far-flung rural areas where land is cheap and power is readily available — one potential solution has emerged. Data centers are going vertical. Rather than building one-story, sprawling data centers in the middle of nowhere, developers are building multi-story buildings to use smaller spaces better.

Microsoft and many other companies are turning to nuclear power to solve its problems. Amazon is working with Dominion Energy to build small modular nuclear reactors (SMRs) to power its data centers in Virginia. Google is also purchasing power from an SMR developer.

Neither of these solutions is without its problems. High-rise data centers are more expensive to build, and in the U.S., regulators have dealt regulatory blows to companies hoping to co-locate their data centers with existing nuclear power plants. So, power-hungry data centers will likely need to continue to get creative.