In May of this year, Scottish construction consultancy firm Soben entered the US, planting its flag at a new Chicago HQ after landing an anchor client on the West Coast.
Appointed to run the Soben Americas office was CEO Joe Cusick, previously director at Linesight, where he led the project controls delivery on a US$2 billion data centre programme and was engaged on more than $8 billion-worth of construction projects. Cusick has also held senior roles at Currie & Brown and Faithful+Gould.
With its 10-year history of managing high-profile construction projects – including data centres in the UK, Denmark, Ireland, the Netherlands and Spain – Soben’s original plan was to take the business to North America via Australia. But the pandemic made that near impossible until the country reopens its borders. With that phase now scheduled for some time late 2021 or early 2022, the decision was taken to go stateside first.
And it was a solid decision: the US data centre construction market was valued at $8.4 billion in 2020 and is expected to reach a value of $13.9 billion by 2026.
Offering a suite of construction solutions and consultancy services, Cusick says one of Soben’s competitive advantages in the US market is offering its clients the skills of a qualified quantity surveyor (QS).
“It is a real pinch point in terms of the supply of that skills set,” says Cusick.
“We saw a gap in the market in terms of having QS-trained leadership within the team that can then take the US market, and young talent coming through the market here, and train them; we can structure young people’s career development to enter the QS-type roles,” he continues.
That said, Soben will not be an “expat company”, importing talent then being perceived “to dictate to the US market and clients this is how you do this role”, says Cusick, who although originally from Scotland has lived in the US for more than 20 years and even holds a US passport.
Cost, risk, schedule
That said, in a business where the objective is to manage costs, risk and schedule, training talent is not the most pressing issue, given current market conditions.
Throughout the pandemic, project management has continually been derailed, creating a situation that has put the data centre industry so many consider recession-proof at the mercy of a range of market forces. As a project controls consultant, it makes for a busy day at the office for Cusick and his team of 11 people across the US, Mexico, and Chile.
“The more you can get your schedule integrated with your cost and risk, the more certainty you will get earlier in the game,” he explains. However, in the past year, what was once a risk has become reality and schedules have suffered as a result. The US, like other markets, has seen supply chain crunches and manufacturing shutdowns of its own. Then, in early July, hot rolled steel reached $1,800 per metric ton.
Reflecting on how the industry has weathered it all, Cusick says: “Over the past 18 months the real challenge has been around the supply chain.”
Citing everything from the availability of generators to IT room equipment, he recalls a double whammy as manufacturing and then shipping went through their own Covid crises, along with the raw materials needed to make vital components and kit.
“Steel, copper – all these components that are critical to what we are doing, and we are putting into these facilities – again have been hard to get hold of, hard to get on time. And even when you get the commitment made, following it through has been the real challenge,” he adds.
On the outlook for steel prices, Cusick – and many others – say they will remain elevated, with “no end in sight” for the current trend.
Copper
But steel isn’t the only challenge – copper is also causing problems of its own.
Cusick says: “The bidding process is getting impacted by it, obviously. Contractors have elevated pricing, and they are almost hedging their numbers as well, based on if some of the biggest contractors or fab plants can stockpile this stuff. You see it less for steel, but certainly for commodities like copper. They have it all stockpiled and they can take advantage of the market.”
He adds: “And contractors are smart; their prices are only good for so many days now and the clients again are going to have to hedge their budgets and make sure they have money set aside for it.”
While projects with bigger players can avoid such pitfalls by using their corporate buying power and volumes to secure logistics and price, they still face on-site issues, such as the supply of construction workers – and for those building in the red-hot Midwest, that’s a problem in itself.
“The Midwest is seeing huge investments in data centres, but they don’t have the skilled labour force in the required numbers. You’re shipping in labour from other regions, paying premiums there as well to get that talent, and if one of the big names has a billion dollars-worth of campus going up – it will take the lever out of the whole region just to supply that,” Cusick says.
The bottom line is that cost now wants its moment in the limelight and building data centres is getting much more expensive.
“Prices are going up even outside these pressures on the materials. It’s a tight market. Only so many companies can produce this may facilities at this scale and at this speed at the right quality and the demand for hyperscale data centres continues to go through the roof,” he adds.
Enough edge
The end of Covid – whatever that may look like – won’t necessarily improve the situation as the explosive demand for edge data centres comes to fruition.
In 2020, a Research and Markets report said the US accounted for 29.5% of the global edge data centre market that year and a global compound annual growth rate of 12.3% is expected to 2027. Is the industry building fast enough to keep up with both the growing demand for edge deployments and its other short- and mid-term requirements?
“I don’t think so,” Cusick says, citing the building programmes of the major hyperscalers and “the edge guys coming in closer to the bigger cities”.
“In the big population centres there has been growth in distribution and warehousing-type projects as well, so it is a really competitive market to come into.
“When you get to edge you have less square footage to put these things in and you are going to start building multi-storey data centres – and that is more costly in the long run as well. I think all those factors will keep driving numbers up.”
Given recent events it’s difficult to imagine the twists that could emerge over the coming 18 months. Recognising the unknowns ahead, Cusick adds: “The big guys are going to have to get creative about how they meet their supplier requirements, and it can’t just be them building out.”
On building out
While the bigger players use their scale advantage to keep costs under control, others can build with additional redundancy and hedge their bets against future market conditions – tellingly, Cusick reports, it’s a common tactic for those in the banking sector.
“They might have a higher cost per megawatt, but they have certainly set themselves up for that future expansion,” he says of this approach to data centre economics.
With the current rate of investments, buyouts and mergers across the entire ICT space it’s difficult to imagine a data centre business being stuck for cash, but in the current conditions, there could be a pinch for mid-sized players in the coming year or two. That said, the general outlook remains incredibly positive – if other challenges can be tackled.
“The data centre market looks like it is almost going vertical and there’s just no end in sight to the need for data, especially as we start to develop autonomous vehicles and all these other data-driven requirements. Certainly, the data centre market looks like it is going to go from strength to strength.”
