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Data Centers: Powering Generative AI’s $4.4 Trillion Boom

The unstoppable momentum of artificial intelligence (AI) is giving rise to another opportunity for engineering and design firms. According to the World Economic Forum, data centers are the physical infrastructure needed to accomplish the $4.4 trillion global opportunity that is generative AI. The latest data from the ACEC Research Institute’s Engineering Business Sentiment Q4 2024 report confirms this growth. Surveyed members reported “data centers” as one of the top five markets with a positive future industry sentiment, scoring +37, up +12 points from the prior year.

In 2023, Cushman & Wakefield reported that data centers consumed 7.4 gigawatts (GW) of power, a 55 percent increase from 4.9 GW in 2022. H1 2023 saw the highest construction of data centers in history in primary markets according to CBRE. Statista reports that primary markets in H1 2024 by total inventory by megawatts (MW) include:

  1. Northern Virginia, 2,600 MW
  2. Dallas/Ft. Worth, 591 MW
  3. Chicago, 589 MW
  4. Phoenix, 511 MW
  5. Silicon Valley, 459 MW

Secondary cities such as Columbus, Austin, and Reno, are beginning to grow as well. Investment in Reno has already surpassed data center investment in Silicon Valley due to land availability and tax incentives. Chicago is also picking up momentum due to its centralized location, existing access to power supply, and political support.

According to Colliers, there are roughly 11,000 data centers in the world and the demand is projected to grow 10-20 percent annually until 2030. Colliers also reports that eighty percent of current demand is driven by hyperscale data centers. A hyperscale data center exceeds 5,000 servers and 10,000 square feet and provides faster network connections and higher bandwidth for large volumes of data. Here are the largest industry players in the hyperscale market by revenue projections to 2029, as reported by EdgeConnex:

  • AWS, $103B to $270B
  • Microsoft Azure, $74B to $256B
  • Oracle, $10.2B to $75B
  • Google Cloud Platform, $15.4B to $56B

Technology Sector Collides with Other Markets

As AI becomes intertwined into our daily routines, we also see it affecting every market sector in which engineers work. Here is how AI is impacting data centers, energy, office space, and health care markets:

  • Increased data center development could house AI technologies.
  • Nuclear power is being fast tracked as an alternative energy source.
  • Coal plants could be recommissioned to power the grid.
  • Vacant office spaces could be converted to data centers.
  • Health care and real estate services go digital.

AI growth is putting upward pressure on the energy market. Data centers are energy guzzlers with large carbon emissions. Morgan Stanley reports that data centers are expected to emit 2.5 billion tons of carbon emissions through 2030. The average data center uses 300,000 gallons of water a day to cool equipment; hyperscale data centers can consume one to five million gallons of water per day according to NPR and The Washington Post. Natural resources are running low, renewables may not be scalable, and the grid is not prepared to handle the power demand created by AI. Therefore nuclear, hydrogen, and fusion energies are all potential alternative energy sources for data centers.

There is speculation that traditional energy resources including decommissioned coal plants and nuclear power plants could be reactivated in lieu of using renewables to accommodate the surge in power demand created by generative AI. Other big industry players may turn to virtual power plants (VPPs) as alternative power sources to fuel data centers via distributed energy resources (DERs). Then there are disruptors like DeepSeek who upended the tech market recently with a less expensive and smaller footprint AI application. It is yet to be seen how this new product may affect the market.

Commercial real estate struggled in 2024, led by an increase in office occupancy rates. Class B and C office property types, struggling the most, are prime opportunities for adaptive re-use projects. Office conversions have been seen for residential and lab space and now data centers are having their go. These projects contain a high financial burden and with interest rates remaining high, investors are cautious. Lack of land availability and unfavorable permitting restrictions allow data centers to be another potential solution for office woes.

The health care market and the engineering industry are feeling many of the same effects of AI. The health care market is seeing heavy mergers and acquisition activity, and it, too, is facing a workforce shortage driven by employee burnout and retirements. The continued proliferation of AI may offer some remedies to both industries. AI can reduce overhead costs by putting technology to work on administrative and operational tasks, thus freeing up time for employees to focus on production work and consumer need.

Diana O’Lare, CPSM, is ACEC’s director of market intelligence. She can be reached at dolare@acec.org.

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Date

January 31, 2025

Category

INDUSTRY NEWS / MARKET FORECAST, Market Intelligence

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