Construction Projects Slowing - What It Means for the Data Center Industry
December 22, 2008

By Staff
Appeared in Data Center Journal

The US economy is hitting the construction industry beyond the housing market. Typically nonresidential construction has a lag behind the rest of the industry due to the length of time it takes from financing, approvals, construction and completion. The lag is starting to catch up. The American Institute of Architects reported the November Architecture Billings Index (ABI) rating was 34.7, down from the 36.2 mark in October (any score above 50 indicates an increase in billings).

It gets even worse when you look at the forecast for new construction in 09. Since the index reflects an approximate nine- to 12-month lag time between architecture billings and construction spending, it is considered a leading economic indicator of construction activity.
With that said and recent declines in retail sales, corporate spending going flat, travel cut backs, and tighter credit conditions the demand for commercial facilities are on the decline.

How will this impact the data center construction industry? Let us first look at the colocation and data center outsourcing providers. In recent months we have heard of several data center expansions and plans for new facilities from various data center providers. For those companies who are financially healthy or well funded this will equate to new and expanded data center facilities. With a growing demand for data center space and outsourcing opportunities to help reduce corporate costs this will be a driving force in the continued growth of this particular sector of the data center industry.

New data center construction in the corporate sector will slow considerably depending on the industry the company is involved in. For instance, many of the financial institutions are just trying to figure out how to keep from sinking and the only data center construction activity in this sector will likely come from consolidation of facilities or immediate power and cooling requirements.

During such difficult economic times it is hard to find many companies that will not be impacted in one form or another.

Some data center / mission critical related engineering firms are continuing to be busy with various types of projects. Syska Hennessy has been a major player in the data center design industry and is only feeling a minor impact from the current economic slide.

According to Chris Johnston, PE and Chief Engineer for Syska Hennessy, "Syska Hennessy Group experiences a decline in design opportunities in the last two months of each calendar year and 2008 is no exception. The difference this year is that the national economy is in a downturn. Overall, our 2008 critical facilities design fees were an improvement over 2007 and we are optimistic that 2009 will approach 2008."

Earlier this year when we surveyed data center professionals it was noted that less than half were being impacted by the economy, but since then approximately 60% have indicated that they are being impacted.

Our readers are indicating that projects that have been started are being value engineered while some projects in the pipeline are being placed on hold while others are being reviewed to determine if outsourcing is a better solution.

What is clear is that business must continue. Consider when your computer is not working properly or your email is down and the impact it has on your ability to complete your job responsibilities. Now consider it on a macro scale such as your data center.

You will do whatever it takes to make sure your computer and its systems are working properly to allow you to complete your tasks. The same is true for a company’s data center. It is likely that many organizations will continue projects that will have an immediate impact or demand such as power and cooling upgrades while expansions will be carefully examined against technology solutions such as virtualization.

For companies who can go on without any major changes they will do so, but for those who must upgrade, expand or outsource they will to keep their business running.

Let us know if you have had projects cancelled, value engineered or if you are continuing as normal. Keep us informed so that you and your peers are informed.