Demand for data centers continues to soar. Can the data center industry keep up?
The answer is unclear. Although there remains plenty of incentive to invest in data center growth, the data center industry also faces a number of barriers to increasing the number and size of data center facilities.
- Challenge 1: Lack of Space
- Challenge 2: Energy Costs
- Challenge 3: Sustainability Concerns
- Challenge 4: Natural Disasters
- Challenge 5: Hiring Challenges
Challenge 1: Lack of Space
Arguably the single biggest challenge to data center expansion as of 2023 is lack of space to build data centers.
Ideally, if you want to construct a massive data center, you'd choose a location with affordable real estate costs, easy access to energy, low natural disaster risks, and the ability to connect to high-capacity network infrastructure. Unfortunately, sites that meet those criteria have already been used up in many cases — and as they say, no one makes new land.
A similar challenge applies to urban areas, where there is good reason to construct data centers, but where facilities that can be converted into data centers, or demolished and replaced with data centers, are in short supply.
To overcome these challenges, data center operators will need to think creatively about where to locate data centers. Sourcing energy from non-traditional sources might make it easier to build facilities in locations that might otherwise lack the energy resources to support a data center, for example.
Challenge 2: Energy Costs
However you choose to supply energy to your data center, energy costs are a major factor — and given the surge in energy prices over the past year, the cost of energy remains a hindrance to continued data center growth.
This may change if energy prices come down, which some observers think is likely. Otherwise, the industry will need to continue to invest in energy-saving technologies if it wants to keep expanding data center facilities without letting energy costs undercut profitability.
Challenge 3: Sustainability Concerns
Another energy-related challenge to data center industry growth are sustainability concerns. As the public in general, and regulators in particular, becomes increasingly aware of the high energy consumption rates of data centers, laws designed to encourage data center sustainability are becoming more common.
The best path forward on this front is for the data center industry to continue investing in clean energy sourcing and energy-saving technology. In addition, clear and transparent reporting about data center energy use may help. Data centers' impact on climate change is not always as dramatic as some folks imagine, and making the public more aware of what data center operators are doing to improve sustainability may help reduce political pushback against data center growth.
Challenge 4: Natural Disasters
Speaking of climate change, a higher prevalence of natural disasters is another barrier to data center growth. Floods, fires, and other climate-linked disasters mean that data center operators must invest in technologies (like backup power supplies) that make their facilities resilient to disruptions. They're also likely to have to pay more for data center insurance.
Sustained demand for data center capacity may mean that data center operators can remain profitable after factoring in higher costs. Still, no matter how you crunch your numbers, building and operating data centers is more expensive today than in the past.
Challenge 5: Hiring Challenges
Like many other industries, the data center industry has faced deep challenges related to employee hiring and retention in recent years. Finding engineers who can design, implement, and manage new data center facilities remains difficult.
This problem may abate as the job market settles down. But for now, the best that data center operators can do is continue to encourage training opportunities for people aspiring for data center careers.
Despite these challenges, the data center industry will probably continue to grow in coming years. But it may not expand as fast as it would if space were more abundant, energy were cheaper, sustainability pressures were less pronounced, natural disasters were less frequent, and skilled data center engineers were easier to come by.