麦肯锡-房地产行业需要了解的数据中心 What the real estate industry needs to know about data centers 2024

October2024

Mcsey

&company

RealEstatePractice

Whattherealestate

industryneedstoknowaboutdatacenters

McKinseyseniorpartnerPankajSachdevadiscusseshowrealestatecompaniescancaptureopportunitiesinthedatacenterindustry.

Datacenterrealestateissuchahottopicthatsomehavewonderedwhetherit’soverhyped.Butthedigitalandcloudrevolutions—andthescale-upofAI—arefuelingtrulyenormous

demandfordatacenters.Inturn,thereareavarietyofwaysthatrealestatecompaniescan

participateinthegrowthoftheindustry.McKinseyseniorpartnerPankajSachdevatalkswith

McKinseyGlobalPublishing’sKatyMcLaughlinaboutwhatthesecompaniesshouldknowabouttheplaces,power,andstrategicalliancesthatcanleadtosuccess.Aneditedversionoftheir

conversationfollows.

KatyMcLaughlin:Datacentersareamuch-discussedtopicintherealestateindustry.Dotheydeservethehype?

PankajSachdeva:Ourviewisthatoverthenextdecade,theindustrywillgothroughanS-curveofdemandgrowthtosupporttheinfrastructurethatwillpowerthedigitalrevolutionand

continuetopowerthecloudrevolution.Itcanalsosupporttherapidscale-upofAIthat’slikelytohappen.McKinseyvaluesAIandgenerativeAIas

aroughly$4trillionglobalopportunity

.1Datacentervalueisarepresentationofthephysicalinfrastructureneededtoachievethat.

Inotherwords,thisisalong-termtrend,asopposedtohypeoraquick,volatilefrenzy.KatyMcLaughlin:Canyouquantifytheexpecteddemand?

PankajSachdeva:Ourproprietarydata-centerdemandmodelprojectionssaythat,today,theworldsitsatabout60gigawattsoftotaldata-center-criticalITdemand.Bytheendofthe

decade,therewilllikelybedemandforaround170to220gigawatts.Inotherwords,capacityneedstomorethantriple.

Infact,ourestimateofdemandunconstrainedbysupplyiswellnorthof250gigawatts.The

powerconstraints—bothgloballyandintheUnitedStates—andothersupplychainissuesaren’ttrivial,makingnorthof250gigawattsachallenginggoal.Butthedemandisthere.

KatyMcLaughlin:Doesthismeanthatexistingdatacentershavetogetbiggerorjustmorepowerful?Ordoesthismeanthatmoreormorepowerfulnewdatacentersareneeded?

PankajSachdeva:Itmeansalloftheabove.Thequestionispower:asweputitinthedatacenterindustry,timetopowerisareallimitingfactorfortimetomarket.Adata-center-

developmentprojectcanbecompletedsouptonutsin18to30monthsifitcandrawfromexistingpowersources.Butnewpowergenerationprojectscantakealotlongerthanthat.

There’slikelytobeamassiveamountofopportunitytobuildfromthegroundup.That’smorelikelytohappeninlocationsthatalreadyhavethenecessaryexcesspowerorinplaceswheretherearewaystoeithergetpowerorgeneratemorepowerinareasonabletimeframe.The

subsetofdatacentersatlocationsthatcaneasilygetmorepoweraregoodcandidatesforretrofitsandupgrades.

1“

TheeconomicpotentialofgenerativeAI:Thenextproductivityfrontier

,”McKinseyDigital,June14,2023.

Whattherealestateindustryneedstoknowaboutdatacenters2

KatyMcLaughlin:Howcanrealestatecompaniesgetinvolved?

PankajSachdeva:Youcouldbreakdowntheopportunitiesintothreebuckets.

Atthemostbasiclevel,therearerealestatecompaniesthatspecializeinbuyingthelandfor

datacenters.Theybuydesirableparcelsoflandthattheythinkwillgetthepowerandnetworkconnectionsneededfordatacenters,aswellascustomerdemand.Thentheysellorleasethislandtodatacenterdevelopers.

Inthenextbucket,therearerealestatecompaniesthatdopartial[datacenter]developmentandthensellthefacilitytoeitherdevelopersorthefinalcustomers.

Atthefurthestendofthespectrum,therearecompaniesthatbuytheland,constructthe

building,provideaccesstopowerandconnectivity,andbuildouttheinterioraswell.Thisistheco-locationmodel.Thesefacilitiesarethenoftenleasedbyenterprisesorhyperscalers,whicharetheirtenants.

KatyMcLaughlin:What’sahyperscaler?

PankajSachdeva:Hyperscalersarethosethatbuildoroperatedatacentersatasignificantscale.Themostobviousexamplesarethebigcloudservicesplayersandthebiggesttech

companies.Theycommissionmultipledatacenterseveryyeartokeepupwithcloud,andnowAI,demand.

Hyperscalersusewellnorthofhalfofallcomputingpower.Byendofthedecade,theywilluse

65to70percentofit.

KatyMcLaughlin:Let’sstartbyexaminingthatfirstopportunity:thepurelandplay.What’schanginginthatmarket?

PankajSachdeva:Untilrecently,datacentershavemainlybeenbuiltinnetwork-and

population-denseareas,suchasinandaroundNorthernVirginia,SiliconValley,andDallas.Butduetopowerconstraints,there’sagrowingshifttosmallercitiesandmetroareas.

There’sanevenmoreinterestingshiftwheredatacentersarebuiltinremotelocations,includinginIowa,Wyoming,Wisconsin,Alabama,andotherplacesthatdon’tactuallyhavelotsoflocal

demand.Datacenterdevelopersinthesemarketsaremakinginvestmentstogetpowerandfibernetworkstothesesites.

Whattherealestateindustryneedstoknowaboutdatacenters3

Bothhyperscalersandreal-estate-data-centerdevelopersdosomethingcalled“landbanking.”Theybanklandindesirablelocationsfive,seven,ortenyearsbeforetheyevenstarttobuild.

Manydevelopershavehundreds,ifnotthousands,ofacresoflandintheirbanks.Theygradually

bringcapacityonline,sotheymightcommissionaprojectof,say,50megawattsor100

megawattseverytwoyears.Muchofitdependsonhowmuchcapitaltheyhavetodeployandwhentheythinktenancywillbegin.

KatyMcLaughlin:Movingontothepartial-developmentopportunity,whataretherecenttrends?

PankajSachdeva:Wehaveobservedmorerealestatecompaniesmovingfrompurelanddealstobuildingthe“darkshell,”whichisbasicallyabigwarehouse.Thentheysellthistoadeveloperordirectlytoahyperscalertodotherestofthebuild-out.

Butwe’realsoseeingmorerealestatecompaniesproceedingtoa“poweredshell.”Thismeanssupplyingthemechanical,electrical,andcoolingtechnology.Italsoincludesrunningfiber

throughthebuildingandcouldinvolvebuildingtheaislesandracks.

Hyperscalersbuildabout50to70percentofthecapacitytheywantthemselves.Buttheydon’talwayshavethetime,land,orcapitaltobuildeverythingontheirown.Sotheybuyorleasetherestfromthirdparties,creatingopportunityforrealestatecompanies.

KatyMcLaughlin:Nowforthethirdopportunity:fullybuildingoutnewdatacenters.What’schangingthere?

PankajSachdeva:Wecallthisthe“co-locationbusiness.”Inthiscase,realestatecompaniesbuyorleaseland,buildapoweredshell,andthencompleteittotheirtenants’specifications.Thesespecsareoftendemandingandcustomizedandtypicallyrequirecollaborationwith

specializedsupply-chain-procurement,engineering,andarchitecturalcompanies.It’snoteasyforplayersthatdon’thaveexperiencetobeabletomeetthesedemandsincapital-efficient

ways.

Wehaverecentlyseenmorerealestatecompaniespartnerwithdatacenterdevelopersand

operatorsinordertoaccessthetechnicalknow-howthatallowsthemtoentertheco-locationbusiness.Someofthesepartnershipsaremoresite-levelorproject-based,whileothersareatacompany/enterpriselevel.

Fiveyearsago,themarketwasn’tassupplyconstrainedasitistoday.Hyperscalersandothercustomershadmoreleverage,andtheaverageleasetermwasaboutfivetosevenyears.

Today’ssupply-constrainedmarketisstartingtoseeleasesoften-plusyears,thoughtheaverageisaroundsevenyears.

Whattherealestateindustryneedstoknowaboutdatacenters4

KatyMcLaughlin:What’stheaverageusefullifeofadatacenter?

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PankajSachdeva:Theaverageusefullifeofdatacenterlandtendstobesomewherebetween

25and30years.Thecoolingequipmentisintheten-to15-yearrange.Andsomeoftheelectricalwork,suchaswithatransformer,anuninterruptiblepowersupply,andapowerdistributionunit,isaroundeightto20years.

KatyMcLaughlin:Thatmakesforacomplexcalculation,especiallywithleasesrangingbetweenfiveandtenyears.Maybeabetterwaytoputitis,howbigariskisobsolescence,andwhatcaninvestorsdoaboutit?

PankajSachdeva:Obsolescenceisarealrisk,butit’simportanttounderstandwhereitlies.

Realestatecompaniesprimarilytaketheriskonthelandparcelandthearchitectureofthedatacenteritself.Buttheytypicallydon’ttaketheriskoftheIThardwareandsoftware,suchas

serversandstorage.That’stypicallywithintheprovinceofthetenant.

Theriskforrealestatecompaniesisusuallywhetherthere’sgood,fiber-basednetworkinfrastructurecomingtoafacilityandwhethercoolingsystemswillstandthetestoftime,

especiallyinlightofglobalwarming.Anotherriskiswhetherafacilitycanbeupgraded,becauseitmayneedmorepowerascomputersbecomemorepowerful.

KatyMcLaughlin:Whataboutriskfromcompetition—theshinynewdatacenterdownthestreet?

PankajSachdeva:Movingisincrediblyhardfortenants.Ifthedatacenteris80or90percent

utilized,tenantsusuallydon’ttakethebusinessriskofmovingalltheserversandITequipment

downtheroadformoremodernequipmentorsl