Digital infrastructure serves as the foundation for continuous innovations which support the rapidly growing volumes of data generated by modern technologies. Over the past decade, the industry has garnered significant attention and investment, driven by digital transformation and further accelerated by the increasing reliance on digital services and cloud computing solutions.
Recent trends, particularly AI, are expected to push demand for data centers to new heights, with the market expected to more than double by 2030. While presenting opportunities for growth and innovation, these trends amplify longstanding challenges in the industry such as power constraints and limited real estate capacity.
Growing Demand and the Race for Power and Space
Power and land resources are indispensable for data centers characterized by energy-intensive operations and extensive real estate requirements. These facilities consume approximately 3 percent of the world’s electricity, a figure projected to double by 2026. Vacancy rates worldwide continue to decline, with major markets like Singapore and Northern Virginia experiencing record lows of under 1%. As demand continues to rise, data center markets globally face strain on their electrical grids and increasingly intersect with local real estate markets, influencing real estate pricing, utility capacity, and government development priorities.
Additionally, the growing popularity of AI and hyperscale data centers generates demand for more power and space than traditional data centers. Hyperscale data centers, known for their massive size and scalability, have further intensified these demands, with their global capacity having increased twofold in the past four years and anticipated to do so again in the next four years. These data centers have dominated the colocation market, and this trend appears to be accelerating.
Currently, hyperscale accounts for 52% of the revenue in London’s data center market, and is projected to rise to 68% by 2028. Maintaining and operating these increasingly large and complex systems requires substantial energy and real estate, exacerbating the existing strain on electrical grids and available land.
As demand continues to outpace supply, the industry faces several key consequences, including rising power and land costs, as well as shortcomings in existing electricity infrastructure shortcomings. In power-constrained markets such as Dublin and Singapore, where the energy situation is particularly dire, moratoriums on new data center construction are being implemented. Ireland serves as a key example of these challenges, with data centers consuming approximately 18% of the nation’s electricity, contributing to the threat of blackouts amidst strained power grids.
In response to these challenges, EirGrid, Dublin’s state-owned grid operator, has decided not to approve any new power grid connections until at least 2028. This decision not only jeopardizes the timelines of current data center projects but also presents significant hurdles for starting new projects due to the scarcity of available electricity infrastructure. With available data center capacity diminishing, pre-leasing capacity several years in advance has become the norm, driving up occupancy rates. GCP’s primary research in 2023 indicates a market even more restricted than expected.
If accounting for pre-leases, the built out occupancy rates peaked at 127% in 2023 and this trend is expected to persist, with rates exceeding 100% for the next five years. These developments highlight power and space as critical limiting factors, threatening to bottleneck this rapidly growing industry.
Geographic Shifts and Emerging Markets
Amid the evolving industry landscape, previously overlooked markets are gaining attention as sites for new data center development due to their abundant and cost-effective supply of power and land. This has prompted many large hyperscalers and colocation companies to expand beyond major metropolitan cores into new and emerging markets. In the UK, a leading global market historically dominated by central London as the primary hub for digital infrastructure, there is now a notable geographical shift. Tech giants like Microsoft and Oracle are expanding beyond this core, establishing cloud regions in Newport and Wales.
This geographical expansion signifies a strategic response to escalating demand and limited growth opportunities in established markets. Amazon, for example, plans to extend its data center network to rural Oregon, capitalizing on ample and affordable power resources. As companies intensify their competition in developing advanced artificial intelligence applications and digital services, they are strategically securing land to construct essential digital infrastructure to support these endeavours. Given current industry dynamics, we can expect to see a rapid expansion of the digital infrastructure industry’s geographical footprint, with a growing presence in Tier 2 markets and remote locations.
Traditionally, proximity to established data center clusters and business districts has been essential for data center projects, driven by the necessity for low latency and robust connectivity. However, improvements in fibre connectivity have diminished the need to be in major metropolitan areas. Consequently, emerging markets are becoming increasingly attractive for new data center developments.
Innovative Cooling Approaches for Sustainable Growth
In addition to expanding beyond traditional market boundaries to alleviate strain on power and land resources in major hubs, innovative liquid cooling technologies are emerging to address these issues and promote sustainable growth.
Direct-to-chip (D2C) liquid cooling is at the forefront as it is one of the preferred cooling methods for the H100 chips. As rack density continues to increase, there will be a reflection in the demand for cooling techs. D2C is transitioning from a luxury performance boost to a requirement for high-density applications.
Immersion cooling is another type of liquid cooling that has seen a recent rise. It is used to moderate equipment temperature by submerging it in a dielectric cooling fluid. These systems can dissipate heat more effectively and energy-efficiently than traditional air-cooling methods, significantly reducing operational costs. For instance, immersion cooling can dissipate heat up to 1,200 times more efficiently than air cooling.
Last notable mention is the Rear Door Heat Exchangers (RDHx) solutions. This approach is considered low-maintenance and a flexible solution that efficiently manages heat rejection and cooling. The system is ideal for high-performance computer centers and dense server racks. Although they might also be used in less demanding computing settings, its preferred deployment requires data centers that utilize 20 kWh+ per rack as anything below 10 kWh would often be deemed too costly to justify the use of RDHx.
The digital infrastructure industry finds itself at a pivotal moment of expansion brought upon by the surge in demand from recent trends. Despite its rapid growth, the industry faces persistent challenges in managing finite resources such as power and space. However, these challenges have the potential to serve as catalysts for change. Geographical expansion, advancements in cooling technologies, and the adoption of renewable energy offer paths toward sustainable growth. The goal extends beyond meeting current demand, it aims to reshape the digital infrastructure industry to lead the way toward a more resilient digital future.
Galaxy Capital Partners is an investment and development firm that aims to develop the next-generation of data center infrastructure. Contact us at [email protected].