The future of data centers: Four predictions

In the early days of the internet, the data center was simply an on-site warehouse in which a company stored its internal data and servers. But within a few decades, data generation exploded so much that it became too expensive or complex for companies to house it themselves, spurring a global data analytics and BI software market projected by one market report to be worth $329.8 billion by 2030^†.

“The data center has essentially become an airport for all commerce,” says Cindy Rogers, Senior Managing Director, and Head of Technology and Telecom Banking at Huntington. “The industry has matured dramatically in a short amount of time. Data creation today is magnitudes of what it used to be.”

Demand for storing and facilitating access to that data continues to rise, which is good news for data center operators. But as that demand grows, so does the need for capital and more cost- and energy-efficient power sources. Operators will need to find ways to balance those needs in the future, especially as the global economic environment changes. In this article, the Huntington Technology and Telecom team has compiled four trends that could shape the future of the data center.

1. Energy efficiency as a means to reduce capital needs

With the sheer amount of data being created every day, it’s no surprise data centers consume enormous amounts of power. A 2022 International Energy Agency report found data center energy use grew 10-60% from 2015 to 2021, and energy demand from data transmission networks and data centers combined accounts for 1-1.5% of global energy use^‡. In the U.S., this demand has led to certain areas having high concentrations of data centers due to their proximity to power supplies. The data center density is so high in northern Virginia, for example, that a significant percentage of the entire world’s internet traffic flows through it^§.

Consuming that much power is, of course, quite expensive. To continue meeting the demand for data, the industry has made efforts to run as efficiently as possible to minimize costs. Most tenants are required to pay the cost of power that they consume at a data center instead of the operators.

“These facilities are designed and built with much greater efficiency than in years past.” says Mustafa Khan, Managing Director, Portfolio Manager Team Leader, Technology and Telecom Banking at Huntington. “Operators have found inventive solutions to reconfigure their data centers to make them as energy efficient as possible.”

As energy costs rise, these infrastructure adjustments could offer much-needed cost savings for tenants. Operators can expect to see emerging technologies, such as more efficiency in chips and cloud computing, provide further opportunities to reduce energy consumption in data centers.

2. Sustainability as a means to maintain operations and meet demands

Data centers are designed to operate 24/7 without interruption or down time. One industry metric that is closely tracked is uptime, which measures how consistently a data center is capable of operating without interruption. However, the U.S.’s energy infrastructure is antiquated, and efforts to modernize it have been slow. As a result, data centers’ complete reliance on the power grid makes them vulnerable when that infrastructure fails in any way, such as during extreme weather events. As a result, data centers have multiple backup generators that are designed to provide zero interruptions while operating for prolonged periods of time, should the need arise.

“Data centers are mission critical infrastructure. You cannot simply shut operations down or scale back usage. They must remain operational 100% of the time, which has led to further conversations about renewable energy and other energy transition opportunities,” says Khan.

As a result, operators have begun committing to sourcing a portion of their power from renewable sources. Strategically, transitioning energy sources and investing in renewable technologies enables facilities to become more resilient. By investing in these capabilities, data centers could reduce their reliance on existing power infrastructure. As these technologies become easier for operators to finance and implement, data centers could see lower costs and fewer outages due to power grid failures.

3. New avenues for accessing capital

The massive growth in the need for data has been a boon for data centers positioned to scale their operations – if they can fund new projects.

Data center operators have typically relied on the U.S. asset-based securities market to access capital to finance new facilities or refinance existing centers. However, gaining funds to capitalize on the heightened demand has been challenging as the securitization market slowed over the last year. Sales of asset-based securities are predicted by some to fall an additional 15% throughout 2023^¶. Faced with needing to pay more in this market, operators are turning elsewhere.

“We’ve seen a shift in how data center operators seek out capital,” says Rogers. “Banks offer the most efficient, cost-effective source of capital for them right now, so operators are turning to their banks for their refinancing needs.”

Today’s rising rate environment adds another element to the equation. Capital has a cost associated with it. In addition to diversifying and finding new financing sources, data center operators might consider risk mitigation strategies to help protect themselves as base rates continue to rise.

4. Labor shortages affecting how data centers recruit, hire, and train

While accessing capital remains a primary concern for data center operators, labor shortages continue to hinder growth for organizations.

“The industry has such strong growth trends, but the main concern data center operators face right now is access to skilled workers,” says Rogers. “Data center specialists and IT professionals are in such high demand.”

The staffing requirement for full-time employees at data centers is forecasted to grow to nearly 2.3 million in 2025 globally, up from about 2.0 million in 2019^≠. But the industry might fall behind within the next few years without the ability to bring in new talent and retain skilled workers.

A 2022 Uptime Institute report found 53% of operators surveyed found it difficult to find qualified candidates, up from 47% in 2021^Ɫ. Retaining employees has also been a challenge – in the same report, 42% surveyed said staff members left their organization, often going to work for a competitor. Compounding this issue is that many data center professionals are due to retire within the next few years. Not only will this leave more vacant positions, often senior roles, but it also leaves critical knowledge gaps within the organization.

Adjustments to recruiting, hiring, and training practices will be needed to bring in and retain new talent. For example, data center recruiters might consider changing requirements on a specialist job that previously required a degree or certification. Rather than searching for a candidate with that training, organizations might allow experience to replace the degree. Offering off-the-job training to employees could drive higher engagement and strengthen retention.

The bottom line is, addressing data center labor shortages will require operators to think differently about their workforce and expectations.

The future of data centers

The ever-increasing demand for data continues to proliferate year after year with the advent of new technology and devices, providing a strong long-term growth outlook for data centers. In the future, we expect to see a rise in facility energy efficiency, investments in renewable energy sources, new means of accessing capital to fund expenditures, and a shift in workforce strategies. To learn more about data center strategies and financial structures that can help support their growth, contact your relationship manager.