From the property mavens at the Commercial Observer, June 10:
Data Centers Lean Into Four Strategies for Filling Labor Gap
The military and the construction trades are among the ways owners and operators are scrambling to meet long-term demand
Forget enough electricity. Or enough land. The real obstacle to the growth of data centers in the U.S. might now be not enough labor.
“The greatest challenge to construction is the lack of skilled workers,” a March report from consultancy Linesight said. “Key trades are already in short supply, and this will be exacerbated by decarbonization, an aging workforce that is not being replaced, and stagnant worker productivity.”
Solving the labor shortage, then, is a major challenge for data center developers, investors and operators.
The work comes as the asset class commands the sort of interest and numbers that used to define investment in the market in office skyscrapers, which, of course, has slowed pointedly amid higher financing costs and hybrid work. In late May, for instance, e-commerce colossus Amazon (AMZN) paid $218 million for a Northern Virginia site cleared for data center development (that’s right — just the land and entitlement). Meanwhile, private equity giant Blackstone (BX) is spending several billion dollars rolling out an artificial intelligence-powered data center business following its $10 billion purchase of operator QTS in 2021.
The investment boom in individual and portfolios of data centers predates the pandemic, too. Transactions in North America hit a 10-year annual peak in 2017 at $5.3 billion in deals, according to a report from brokerage JLL. That figure declined the next few years, before picking up again in 2021, when transactions totaled $4.5 billion. There were $4.6 billion in deals in 2023.
Both the JLL (JLL) report and one from early 2023 from consultancy McKinsey & Company — which predicted demand for data center services would grow 10 percent per year for the foreseeable future — cited labor as a prime obstacle to that very growth.
Plus, an early 2023 survey of more than 1,500 data center owners, operators, vendors and consultants by IT service management company Uptime Institute found staffing as the primary concern of respondents, outpacing improving energy performance. Some 92 percent of respondents said they were very, somewhat or slightly concerned about a lack of qualified staff.
“It’s very consistent,” Douglas Donnellan, an Uptime Institute senior research associate, said of the survey, which has been conducted annually for 13 years. “What our data has suggested is that things are not necessarily getting worse. They’re also not getting better. There’s a lot of untapped potential that the industry hasn’t fully recognized and embraced yet.”
How to tap that potential? There are four major ways to solve the skilled labor shortage in the data center industry. Each comes with advantages, and some solutions have built-in challenges of their own....
....MUCH MORE
