Forecasts For 2023: Growth For Data Centers

The prediction game takes work. 2022 was proof of that. Who at the end of 2021 could have foreseen the war in Europe and the energy crisis? Two realities with significant impacts, including on data centers. However, having long-term visibility is essential in the world of data centers. Let’s try to imagine the 2023 opportunities…

To say that 2022 has been a year of disruption is an understatement. Last year, much of the outlook for the data center industry was about balancing growing digitalization with more sustainable practices. We had not foreseen the consequences of the massive disturbances affecting the geopolitical landscape, notably the eruption of the severe energy crisis we face.

The current situation reaffirms the importance of addressing the issues raised last year while bringing new challenges. Thanks, in particular, to digitalization, new opportunities and technologies are being put in place to face these new challenges. Here are some predictions for the data center industry in 2023 and beyond.

An Energy Uncertainty

The biggest problem we are currently facing is the extraordinarily high price of energy. Costs have skyrocketed to become a genuine concern for large energy consumers, such as data center owners. Will prices continue to rise? Do they have the cash flow to manage this phenomenon in their business model? 

While the argument for a renewable generation strategy has always been about sustainability and the environment, the need to develop local renewable energy is currently linked to the need to protect the supply of European countries., mainly for energy security and cost issues. Microsoft, for example, has taken a step in this direction. 

Its Dublin data center is equipped with grid-tied lithium-ion battery banks to help grid operators provide uninterrupted power if renewable energy is insufficient to meet demand. This need to accelerate renewable energy production is in line with the forecasts made last year. However, it has increased significantly. For European governments, this should serve as a wake-up call that they can no longer rely on traditional energy sources.

Broken Supply Chains

The pandemic has significantly impacted global supply chains in many sectors. When it started to recede, businesses worldwide were lulled into an illusory sense of security, thinking they had come through the worst. No one expected the ensuing geopolitical crisis, which proved even more disruptive than COVID for some supply chains, especially regarding semiconductors and base metals, essential elements for constructing data centers. Like most prominent industry players, the data center industry is highly susceptible to supply chain disruptions as a high-growth market.

Limit Growing Complexity

The demand for digital growth has reached an unprecedented level. All possibilities have been explored to meet this need in a more straightforward, cost-effective, and timely manner. But this can conflict with the nature of many highly complex and critical environments. A data center is a home to various technologies, from HVAC systems to mechanical and structural engineering, to IT and computing systems. 

The challenge is accelerating these highly complex and interdependent environments to maintain current digitalization trends. To this end, data center designers, operators, and suppliers are developing systems to reduce this complexity while respecting the critical nature of specific applications.

 Industrialization, or the improvement by modules of the data centers, consisting in delivering on-site prefabricated, pre-designed, and pre-integrated units, is a way of making the design and construction of a data center less complex while guaranteeing a faster market.

Go Beyond The Traditional Poles

Until now, London, Dublin, Frankfurt, Amsterdam, and Paris have been the traditional hubs for data centers, either because companies have their headquarters there or because they are economical and industrial hubs equipped with excellent telecommunications connectivity and an ideal customer profile.

To provide quality service and to be closer to the centers of population and economic activity, it becomes more favorable to build data centers in the secondary cities of the major economic nations and the capitals of the economically less important countries. Competition among data center operators is high, so many Tier II cities and territories offer growth potential for existing operators or a weak entry point for new operators. 

Thus, it is possible to see increased activity in cities such as Warsaw, Vienna, Istanbul, Nairobi, Lagos, and Dubai. But this expansion comes with some challenges. Considerations of the availability of suitable sites, power supply, and engineering workforce are, among others, all factors that add complexity to a company’s overall operations. Many countries may need more experience or personnel to help design, build, and operate a new data center.

The challenge for data center owners is to start from scratch each time they move to a new region. Despite these difficulties, new markets continue to open up, and many operators are trying to be the first to enter secondary markets to gain a competitive advantage. Indeed, many jurisdictions welcome data center operators with open arms, with some even offering incentives and grants to attract them.

If we can draw a lesson from this year, it is impossible to have certainties. The aftermath of the pandemic and the current geopolitical situation leaves the sector facing unprecedented challenges. However, growth opportunities exist. Trends show us that the most far-sighted operators can weather the storm and face the challenges ahead.

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