Data centers are under a lot of pressure these days. The demand for computing power is rising faster and faster, but the existing facilities aren’t enough to cover all the demand. But it’s not a question of simply building more data centers to solve the issue; an equally pressing and difficult challenge is securing enough power.
The industry is rightfully trying to solve both challenges at the same time. This is the best approach as the location and construction of the data center can have a big impact on its energy supply and consumption, and sustainability is a key selling point for clients who are racing to meet their own climate goals. For everyone, the elusive full carbon neutrality means they must ensure all of their services are as green as possible.
There are some interesting solutions already forming, and also a few key trends. When we put them all together, we can have a decent idea of whether the industry is going to answer the challenges and do so fast enough. The lack of capacity and vacancies in data centers is bad for their operators, clients, and the economy as a result.
Demand is booming everywhere
A recent global trends report by CBRE shows that investments are focusing on emerging markets as a way to meet power demand. It points to several of them as key trend drivers: Northern Indiana, Idaho, Boise for the US. Globally we also have: Mumbai in India, Rio de Janeiro in Brazil, and Oslo in Norway.
“Hyperscaler ambitions and lower power costs have driven rapid growth of markets such as Oslo, given its accessibility and economic importance. In some cases, this makes them hotspots of data center construction,” says Kevin Restivo, head of data centers research, Europe at CBRE to DataCenterDynamics.
Meanwhile, all of the major data center markets are posting declining vacancy rates, meaning it’s getting more and more difficult for companies to find a data center with the needed capacity, including for colocation. And when they do, chances are the rental rates have gone up. Some regions are showing up to 50% increase in rental since Q1 2023. North America nets an average increase of 20%. The two most expensive places to rent data center capacity in the world are Santiago – $500 per kW per month and Singapore – $330.
Naturally, these prices are too high even for enterprises. So, many companies are looking towards secondary and emerging markets to rent. And clients are looking for a specific set of features: markets with access to power, especially renewable energy sources, good electrical infrastructure with upgraded power lines, good rental prices and open regulations.
Of course, it’s almost impossible to find such perfect places. But there are some good choices out there, like Paris for example. It has enjoyed a 40.6% increase in inventory for Q1 2024, compared to Q1 2023. Chicago nets a 57.2% increase, and Dallas has emerged as a new hotbed for data centers with record high for pre-leasing and construction. Just in Dallas right now, 372MW of data center capacity is under construction and a whopping 91.8% of that is already pre-leased.
Amsterdam’s bad example
Whether or not artificial intelligence (AI) is a positive thing for the industry and economy remains to be seen. AI might still be in its infancy, but it’s already incredibly hungry for computing power. It’s already driving record demands in data center markets around the world. In Europe for example, AI-specific requirements are driving new records in the data center market, including colocation – aand it’s just getting started with demand continuingue to increase.
Vacancies are also dropping due to the AI demand. In Amsterdam for example, vacancies have dropped to 11.5%, with the capital of the Netherlands being an interesting case. In 2019, it announced a moratorium to ban all new data center developments in the city limits. It was in place for a year and then it was lifted. Then, other smaller moratoriums and restrictions were imposed, and as a result, the original moratorium’s effects are still being felt in the local economy.
“Amsterdam is still a top-tier market; it’s currently the third biggest in Europe, but it’s about to drop to number four because Paris will soon grow to a greater size. It’s always been number three, but the original moratorium really knocked the wind out of Amsterdam’s sails,” says Andrew Jay, head of data center solutions at CBRE to DataCenterDynamics.
The moratorium was introduced because at the time the city felt there wasn’t enough space. It wanted the time to ensure regulations which would make future data centers “occupy as little space as possible and fit architecturally well with the environment… The arrival of data centers is, in a sense, a result of our own consumption and lifestyle: We want to be online on our phones and laptops all day. To a certain extent, we will have to accept the associated infrastructure, but the space in Amsterdam is scarce,” said Marieke van Doorninck, Amsterdam’s alderman for sustainability and spatial development.
The moratorium also aimed to help the city manage the energy demands. When it ended, there was a specific requirement for new projects to be as energy efficient as possible and very high standards were put in place. In June 2024, the Dutch Datacenter Association (DDA) published its State of Dutch Data Centers 2024 report to showcase the effects of the moratorium. It says the Dutch colocation market has slowed significantly in recent years, despite Amsterdam being a communication hub. “The moratorium in Amsterdam and Haarlemmermeer, caused the international demand, especially for wholesale data center space, to drop strongly and move to other locations across Europe”, says the report.
What’s more, the Netherlands is actually losing data centers. In 2023 there were 187, while in 2019, before the moratorium, there were 189. In 2019 there were 111 colocation companies in the Netherlands, while in 2023 they were 95. Amsterdam plays a key role in both as it has a 71% share on the entire Dutch data center market. What’s worse, in Q1 2024, no new capacity was brought online in Amsterdam. As such, it’s now lagging behind the other top European Tier One markets – Frankfurt, London, Paris and Dublin. It also added less capacity than any of them last year – just 62MW.
The not so good example by Singapore and Dublin
Lessons from the other side of the world aren’t much different. Also in 2019, Singapore introduced a similar moratorium due to concerns there wouldn’t be enough power for the country. It was partially lifted in 2022 as new projects were allowed under certain rules. The country also introduced plans to add 300MW of capacity by optimizing existing data centers.
Analysts from BMI didn’t see much good though. “Our core view is that large-scale data center capacity investments are unlikely to go back to Singapore as a result of global key trends in the industry and momentum held by neighboring markets, primarily Malaysia,” says BMI in a report. It also adds that said neighbors in the region are planning to offer up to 2500MW of new capacity over the next few years.
In 2022 Dublin also introduced a moratorium on new data center projects. It will last up to 2028 and again the reason is concerns for the energy supply. Ireland’s Central Statistics Office shows that in 2022, data centers in the country consumed 18% of all electricity. And the projections are that by 2026, this could rise to 32%.
So, what to do?
It seems like a very unfortunate situation. Data centers are very much needed, and everyone agrees. But key markets are concerned whether they can handle so much demand, and emerging markets are, well, emerging and not ready to fully help. It will take time for the investments, which are already flowing towards them, to produce the desired results, but the energy supply seems to be the main area of concern.
So, data center operators are taking matters into their own hands. At least those of them which have enough resources. Meta is one of them and it recently announced a new geothermal energy project to support its data centers.
“At Meta, we understand the need for reliable, affordable and carbon-free power, and we’re committed to pioneering clean energy initiatives to support our work. We’re excited to partner with Sage on a first-of-its-kind project exploring the use of new, advanced geothermal energy in parts of the country where it has not been possible before. And we appreciate the Department of Energy’s leadership in recognizing the opportunity geothermal technology offers going forward,” says the company.
Why geothermal energy?
Meta says it’s a viable renewable energy source across the US.
“Advanced geothermal energy is currently mainly used in Nevada, Utah, and California. Sage’s technology marks a significant advancement for the clean energy sector, showcasing the ability to harness geothermal energy virtually anywhere and promising a new era of reliable, sustainable baseload power and enhanced grid stability. Hot dry rock is a vastly abundant resource compared to traditional hydrothermal formations, making Sage’s GGS technology a highly scalable approach with the potential for rapid expansion across the US and globally,” Meta adds.
The company plans to have the first phase of the project operational in 2027. “As part of this partnership with Sage, we’ll plan to deliver up to 150 MW of new geothermal baseload power to support our data center growth,” it says. Meta adds it has contracted more than 12 000MW in renewable energy projects, “making us one of the largest corporate buyers of renewable energy globally.” The company is an example of how eventually data center operators will have to help themselves. Unfortunately, not everyone has such resources to do so. So, industry partnerships might be a key to solving the challenges.