Data center leaders: Ready to tackle rising construction costs?

Demand for digital infrastructure is sky high—as are costs for building and maintaining the facilities that supply it. Today’s data center leaders must rise to the challenge of rising materials and labor costs, while also delivering 100% uptime and more sustainable, cost-effective operations.

Fortunately, data center owners have a variety of tools at their disposal to help manage construction and operational costs. With insight-driven project management, creative design strategies and leading facility management practices, data centers can optimize costs while building or modernizing existing facilities to meet the continued increasing demand.

Understanding the data center construction boom

Last year, data center demand in the United States increased by a staggering 72.9% from 2019, according to JLL research. Meanwhile the construction pipeline also reached near record levels, with 611.3 megawatts (MW) under construction in the US—double the amount recorded in 2019. 

Activity remains high in Northern Virginia, where 326.0 MW are currently under construction, as well as other hot markets including Atlanta, Phoenix and Chicago. Across the pond, Europe’s industry heavyweight is Frankfurt, which currently leads the region with 117.8 MW under construction.

Yet, to grow responsibly and ensure ongoing profitability, data center owners must know how to navigate rising construction costs as well as operational costs. That starts with understanding the factors driving up costs.

Why data center costs are on the rise

Data centers were already expensive to build (albeit worth every penny). The average-powered base building of a data center typically ranges from $125-$200 per square foot. But infrastructure is the real cost hog. Once you add in the switchgear, redundant chillers and generators, and other equipment, an N+1 data center (which means full capacity plus a component to account for potential failure) with 3.5 MW capacity costs between $280-$350 per square foot or more, depending on power, redundancy and availability.

New cost pressures complicate data center construction. Recently, product availability and pricing have reached unprecedented levels, with pandemic-related trade slowdowns and shortages driving up costs and impacting lead times. Lumber prices, for example, have skyrocketed nearly 250% since last spring. Copper and various types of steel have also recorded recent cost increases. 

Moreover, with the construction pipeline as strong as it is, industry experts are grappling with a shortage of skilled labor. Given the sensitive nature of a data center, owners and operators prefer specialty trade laborers to build and operate their facilities, who have experience within critical environments. Finding the right laborers is an ongoing industry challenge, and can lead to higher labor costs depending on market conditions.

Six ways to manage data center costs

The following are key steps to a cost-effective construction and operation strategy, whether you’re building new or considering an existing facility:

1. Understand the cost impacts of location. When building a new data center, state and local policies around unions, sales tax and land costs can all be game-changers in terms of construction as well as ongoing operational costs. You should also evaluate relative access to power and what, if any, incentives are available to data centers.
2. Leverage buying power. A classic workaround to high materials costs is to buy in bulk. Partnering with a trusted third-party vendor that maintains strong relationships with materials suppliers and other service providers can help you achieve volume discounts and preferred pricing.
3. Plan ahead. Pre-order as many supplies as you can, and as early as possible. While ordering earlier won’t necessarily result in direct cost savings, it will go a long way in making the whole development schedule feasible, reducing overall project costs. With a long lead time, you’re much more likely to get critical components in time and ready to install when needed.
4. Get creative on design. Rising land prices, particularly in industrial areas, are prompting some operators to build two-story facilities instead of the typical one-story building. Meanwhile as data centers grow beyond the 1 MW capacity of years gone by, toward halls exceeding 6 MW, you may also be able to optimize spend by simplifying and streamlining electrical design.
5. For enterprise-owned data centers, consider if now is the time to move to colocation (colo) or the cloud. If your enterprise is facing steep renovation costs or needs a new facility altogether, now is the time to consider alternatives to avoid those high construction costs. For example, is it worth the cost to replace a roof or generator on a 20-year-old facility, when you could achieve more capacity and scalability in a sophisticated new colo—or move your data to the cloud? Many enterprises are eyeing these options because the cost of in-house ownership may negate the benefits.
6. Pave the way for operational savings. Whether you’re building new or updating an existing facility, several actions can lower costs while driving 100% reliability. For example, investing in direct evaporative technology or other energy efficiency measures can help lower energy costs and water usage. And incorporating facility management (FM) best practices like automation and preventative maintenance can reduce the costs of human error and improve equipment performance.

Expert insight for strategic cost management

Some things you can control, some you can’t. To stay competitive, you have no choice but to deliver resilient, 100% uptime. But you do have choices when it comes to tackling rising costs without compromising performance. By partnering with data center real estate experts who understand the unique needs of data centers, you’ll not only manage costs—you’ll optimize them.

To explore fresh ways to manage costs in your data center strategy, reach out to a JLL expert today.