Data Transformation Hub: A New Era of Information Processing and Storage

The data center market is a complex and dynamic landscape, segmented by ownership, use, size, power density, and strategic location. This sector sits at the intersection of real estate, infrastructure, telecommunications, and energy, and is a distinct and evolving asset class.

In recent years, the United States has emerged as a prime location for data center expansion. Regions like Northern Virginia, Atlanta, Dallas-Fort Worth, Chicago, Phoenix, Silicon Valley, and Hillsboro in Oregon offer the best opportunities due to their high future power capacities, shortest delivery times, and significant capacity growth. For 2025, these regions are projected to have low vacancy rates and ongoing construction of 5.2 GW, much of it pre-leased to cloud and AI companies. Germany also plans substantial investments in cloud and AI infrastructure, but its growth is slower compared to the U.S., and future electricity demand in German data centers is projected to increase significantly by 2030 and beyond.

As the demand for data centers continues to grow, so does the electricity demand. This trend is expected to continue through 2050, adding additional challenges to an electricity sector already under pressure. To address these challenges, technologies like immersive cooling and direct to chip cooling are under development. Immersive cooling submerges hardware in dielectric fluid, eliminating water consumption but requiring considerable building adjustments, and not every server is compatible. Direct to chip cooling, on the other hand, sees water circulating racks close to microchips, requiring less water than traditional methods.

The development of data centers brings high energy demand and operating expenses, with energy demand from data centers set to grow significantly in the coming years. This energy demand is exacerbating the demand on the energy supply, particularly at a time when the world is trying to decarbonize electricity sources. To address this issue, Small Modular Reactors (SMRs) present a business case for data centers, as they can address the challenges raised by the deployment of additional renewable capacity.

Data centers require space, network connectivity, a reliable supply of power and water, and technical equipment such as electrical and cooling equipment. Most data centers are made to be leased to only one tenant, with the wholesale market catering to large clients that require significant space and power, and the retail data center market referring to the colocation market. Hyperscalers are expanding their data center footprint to grow their cloud services and develop their Artificial Intelligence services.

Enterprise data centers are owned and operated by the companies that use them, while outsourced data centers are owned by public cloud operators, colocation providers, wholesale operators, or investors. "Hub" data centers are more central in well-connected regions and tend to be larger, while "edge" data centers are smaller in size and tend to be located on the peripheries of the network.

Operating temperatures in data centers are under debate, with some suggesting that every 1°C increase could lead to significant energy cost savings. However, end clients are reluctant to risk their expensive technology without clear evidence that this temperature increase would not impact the operationality of the data centers. Despite a boom in data center construction over the past decade, vacancy rates have continuously declined as demand has surged. Liquid cooling is increasingly considered to be the way forward in data centers, as it absorbs heat directly from the servers and carries it outside the premises, reducing water demand.

In conclusion, the data center market is a rapidly evolving landscape, with opportunities for growth and investment, particularly in the United States and Europe. However, the challenges posed by increasing energy demand and the need for decarbonization must be addressed to ensure a sustainable future for this sector.