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Sector watch: Data center construction will continue to surge in 2022

Industry sources expect demand for these types of facilities to expand this year, especially in a handful of markets like Phoenix, Dallas and Atlanta.Published Jan. 21, 2022Sebastian ObandoReporter

Morris MacMatzen / Stringer via Getty Images

Editor’s note: This article is the second in a series looking at five of the country’s hottest construction verticals. Click here for the first article focused on distribution centers and warehouses. 

Data center construction has been surging during the pandemic, fueled by huge growth in e-commerce. 

While that type of demand will likely cool off in 2022, a surge in orders by other users should keep activity in the sector humming along, according to industry experts, if enough workers can be found to build it out.

According to a data center report from U.K.-based global real estate and infrastructure consultancy Turner & Townsend:

  • 95% of respondents predict data center construction demand in 2022 will be greater than 2021.
  • 82% of respondents rate data center construction market conditions as hot or overheating.
  • 70% of respondents consider the data center industry to be “recession proof.”

Construction trends developing

Data center projects are getting larger, while timelines and schedules are getting shorter, said John Arcello, advanced technology core market leader at DPR Construction, a California-based commercial general contractor. 

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Previously, the duration of a data center project could take around two to three years in planning alone, but that process has been compressed to around 18 months, Arcello said. The actual construction aspect of a project is even shorter, aided by standardized designs and repeatability, Arcello said.

 John ArcelloPermission granted by DPR Construction 

“I think [shorter timelines] is from all of the stakeholders. From data center operators, they’re really looking to get in front of it by doing land banking,” said Arcello. “They’re looking at ways that we can do vendor management, inventory as well.”

Another trend affecting data center construction is the specific types of facilities that enterprises are using to meet their IT needs, said Ryan Ferguson, vice president and project executive of Mission Critical at McCarthy Building Companies. 

“We are expecting continued strength and activity in the data center sector as demand for data centers of all types grows,” said Ferguson. “The rapid growth we saw in 2020 and 2021 related to COVID-driven work-from-home and an increased dependence on web-based commerce will likely level off while other factors will ramp-up demand.”

He added another factor in the sector currently is balancing the building of new facilities versus using stranded capacity and shell space in existing facilities to maximize capabilities of what’s already been built, particularly in the face of labor shortages. Even cryptocurrency could spark a surge in data centers.

Ryan FergusonPermission granted by McCarthy 

“As cryptocurrencies, NFTs and the metaverse continue to become more mainstream, a new sub-sector of the data center industry is rapidly emerging in the cryptocurrency mining space,” said Ferguson. “China’s outlawing of cryptocurrency mining sparked an arms race to deploy these facilities in North America.”

Jim Nowakowski, president of Accountability Information Management, a Palatine, Illinois-based B2B research company, said it’s the increased diversity of the types of businesses building data centers today — and not just the e-commerce giants — that really stands out. 

Jim NowakowskiPermission granted by AIM 

Sports arenas, convention centers and offices, for example, are “really where the action is,” he said, while the overall value of hospitals and clinic projects are among the highest in the industry. 

Growth is concentrated in Northern Virginia, Dallas, Phoenix, Chicago, Silicon Valley and Atlanta, according to the report. 

Labor challenges still remain

However, despite strong demand, the sector has experienced acute staffing shortages due to COVID-19, which have restricted data center construction capacity in North America and impacted supply chains.

Paul BarryPermission granted by Turner & Townsend 

“The skilled labor workforce is one key theme,” said Paul Barry, associate director in Turner & Townsend’s Dallas office. “We have some projects in rural locations where you’d almost need to go as far as incentivizing the workforce to bring them to your project.” 

The Turner & Townsend report found that:

  • 87%of respondents agree global material shortages have caused delays to data center construction.
  • 84% of respondents reported skills shortages for experienced data center construction teams.
  • 58% expect the proportion of retrofit/conversion of existing stock, instead of new builds, to increase year-on-year.

There are currently around 180 projects valued at $9.4 billion in the planning stages in the U.S. and Canada, with most of those projects by colleges, universities and government buildings, including fire and police stations, according to Accountability Information Management.

“Life without data and the ability to process it becomes less rich, less fulfilling,” said Nowakowski. “As long as people keep demanding it, and devices are talking more and more to each other, data centers will have a bright future.”

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Filed Under: Commercial Building

Columbus lender buys contracts from minority- and women-owned firms

The initiative pays small subcontractors the value of their contracts up front, so they don’t have to wait for the check to arrive in the mail.Published Dec. 23, 2021Joe BousquinSenior Reporter

Adeline Kon/Construction Dive

There’s an old adage among construction contractors: You’re never one big job away from bankruptcy.

The saying works not only from the perspective of always needing to win new projects to stay busy; it also applies from the standpoint of the risk contractors assume when they get what they wished for and take on a large project. 

Indeed, because contractors must pay workers and buy materials to keep a job in motion, sometimes for months before they ever get paid themselves, the bigger the project, often the bigger the risk.

This is particularly true for small, minority- and women-owned businesses, who are almost always challenged to meet the financing and cash flow requirements of the contracts they win.

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For example, Denise Ransom, owner of Columbus, Ohio-based Elite National Building Services, which provides in-progress and final cleaning services for commercial construction projects, knows the bigger the contract she wins, the more financial gymnastics she’ll have to perform to see it through to completion.

“There are few banks that will fund construction projects unless you’re a huge contractor,” Ransom said. “But for subcontractors, generally, it’s a challenge. My only asset is my house, and you can only put that up for collateral so many times.”

Another hurdle is the time between getting the work, and when she’ll actually get paid for the completed job, which is typically at least 90 days. That introduces another complication for small businesses like Ransom’s: even if she could get a bank loan to fund her contracts, she’d still have to start paying it off before she received the funds for its completion.

“Banks want you to start paying that back in the next 30 days,” Ransom said. “That doesn’t work if you’re cash strapped.”

The solution has been a program called Capital for Construction, an initiative of the Columbus-based Economic and Community Development Institute, a Small Business Administration intermediary microlender focused on developing small, minority- and women-owned businesses.

In the three years since its founding, Capital for Construction has disbursed loans totaling $4.9 million to disadvantaged contractors for payroll, materials and other project costs. Loans can be approved for as little as $5,000, all the way up to $350,000.

That’s the type of loan Ransom now uses to buy materials and pay her staff when she wins what for her is a large contract in the five- to six-figure range.

“When I get a contract or a purchase order for services, I’ll go to ECDI and ask for enough to cover my supplies and labor in the value of this contract so I can buy materials and I can pay my subs,” Ransom said. “Once the job is over, the general contractor pays ECDI back the amount that I’ve taken out, I get a check for a balance if there is one, and that fills the gap.”

With interest rates in the mid to upper single digits, the loans themselves are competitive with what small subs could get from banks, if they were able to get those loans. Steve Fireman, ECDI’s president and general counsel, said the program culls funding from multiple sources to pull the loans together.

“A loan for $100,000 might have $25,000 from our SBA fund, $25,000 from an area bank, $25,000 from a foundation the borrower qualifies for, and $25,000 from a general fund,” Fireman said. “All of those might have a little bit different note rate, but they come to a blended rate of 6.5% or 7%.”

Nancy Tidwell, president of Columbus-based NRT & Associates, a small public affairs and consulting firm focused on community outreach and diversity and inclusion who has helped lead the Capital for Construction initiative, said the program targets the biggest hurdle small and minority subs have: getting paid.

“Access to capital is the number one barrier for minority construction contractors,” Tidwell said. “There are a number of commercial contracts small companies won’t even bid on, because they know they can’t get paid quickly enough.”

From that perspective, the program essentially buys out the value of a sub’s contract from the beginning, instead of the small business waiting to get paid months after a job is done.

While the program is currently focused within Ohio, Fireman said similar initiatives are available in a few other states, including North Carolina, and that the concept has the potential to work at a broader level.

Ransom would welcome that type of development.

“It’s a godsend. Without it, I wouldn’t be where I am,” Ransom said. “I wish it was a program that was nationwide.”

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Construction’s career crisis: Keeping workers on site and in the industry

Climbing out of the labor shortage requires training new leadership, changing jobsite culture and investing in technology and safety, experts say.Published Nov. 1, 2021Zachary PhillipsEditor

Adeline Kon/Construction Dive

This is the fourth in a series of articles looking at the skilled labor crisis in construction, its causes and potential solutions. Click here to view the entire series.

Quite simply, many people aren’t aware of the career they could have in construction.

That’s a large reason experts say construction is struggling to find and keep workers who build careers, rather than just work jobs. Since the COVID-19 pandemic, larger numbers of the older workforce have retired than was expected, as some waited within the safety of their homes before evaluating their next career step.

At the same time, high schools seem to make college the only option for students, and it’s harder for some young people to see a future in construction.

“The smartest person in the city during a heat wave is the one who knows how to fix the air conditioning.”

Greg Sizemore

Vice president of health, safety, environment and workforce development at ABC

“From a trade school side, this goes back to our industry, and that we have to do a better job at raising awareness. You don’t have to go to college to be successful,” Chad Goodfellow, CEO of Goodfellow Bros., a Hawaii-based contractor, told Construction Dive. “Our employees in the trades often enter at [a] higher salary than our college graduates, with much less student debt.”

Retention begins with recruiting

A key to the skilled labor crisis, experts said, is ensuring that workers know they can have a long and successful career in construction, and not merely view it as a job or a one-time gig.

In order to do that, it’s vital the trades let workers know that they can learn and become an expert in a skillset that will be marketable anywhere in the world, said Greg Sizemore, vice president of health, safety, environment and workforce development at Associated Builders and Contractors.

Sizemore, who is based in Washington, D.C., joked that, despite it being the capital of the country, “the smartest person in the city during a heat wave is the one who knows how to fix the air conditioning.” That’s a skill that will always be needed.

But it must also be clear to construction workers that their path through the industry may not be a vertical ladder; many times workers walk on the jobsite with one job, and have three or four very different ones by the time the project is complete, Sizemore said. When a worker understands how they can advance, even if it’s not a vertical ladder, they’re more likely to commit to their job and appreciate leadership.

Training leadership

The skills required to help construct a building and those required to manage a jobsite are not the same. Nevertheless, often the managers running billion dollar jobsites were, at one point, just holding a shovel, said Brian Turmail, vice president of public affairs and strategic initiatives for the Associated General Contractors of America.

As a result, it’s vital to train emerging leaders in the skills required to be a boss, something both AGC and ABC have invested heavily in. As much as employers need to invest in training their workforce, they need to invest in training leaders as well, Turmail said.

That can create a beneficial cycle, said Goodfellow, whose business boasts a high employee retention rate.

Chad GoodfellowPermission granted by Goodfellow Bros. 

“To me, a key piece of what makes this work is that you have to have your skilled superintendents and other longtime staff committed to bringing up less experienced employees who are entering the workforce,” he said. “When you have that, then you are able to build that next generation of leaders.”

As simple as salary?

For union workers, salary is negotiated before construction can even begin, which can make it easier for some workers to build careers, said Sean McGarvey, president of the North American Building Trades Union.

When workers, union or not, see the salaries of the higher-ups in corporate America, they can be left with a sour attitude, McGarvey said. They’re the ones on site doing the hard work, and they often know the value they create.

But according to Anirban Basu, chief economist for Associated Builders and Contractors, that’s not always the case. 

Increasingly, Basu said, contractors value other aspects of their workplace than just the salary, and, especially in a pandemic, are willing to settle for less money if it means more comfortable and safe working conditions. 

Communicating safety, creating comfort

It’s largely Generation Z, the youngest generation in the workforce, that cares more about work conditions than pay, Basu said. As a result, if they have the option for a slightly lower paying job, but with more predictability, both in the physical location of their workspace and dangers of their work, they’re likely to choose that one. In many cases, this leads workers away from construction.

“If you’re going to start attracting people who’ve typically been underrepresented in the industry, it’s time to drop the pinup calendar in the jobsite trailer.”

Brian Turmail

Vice president of public affairs and strategic initiatives for AGC

Construction’s safety practices as a whole have increased in the past few years, said Sizemore. Nevertheless, construction is an industry that can be dangerous and requires constant vigilance on the jobsite.

It’s up to the contractor and the jobsite managers to continue to make safety not just a high priority, but a recruiting tool. A simple step is for a contractor to prove that its injury rate is below the national average, Sizemore said. By indicating the company is a safety leader, it can create an air of trust before a worker steps foot onto the jobsite. 

Beyond safety, there can be uncertainty in the workplace, as it is constantly changing. Workers can have different tasks day to day, or find themselves going to several different jobsites frequently. Either way, it’s a challenge to staff some jobsites that are far away, or inconsistent.

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Goodfellow Bros. has had success, Goodfellow said, by assigning workers to jobsites close to their homes. That could be easier for regional contractors, like Goodfellow, which does work in Hawaii and the Pacific Northwest. 

But workers aren’t just after feeling safe and comfortable in their routine, Basu said, there is also an important element of respect that the emerging workforce expects at their jobs.

Changing the culture

Some sociologists have suggested that younger workers, both Gen Z — those born between 1997 and 2012 — and millennials — those born between 1981 and 1996 — are more sensitive to criticism, Basu said. While not wanting to stereotype across generations, Basu said it’s vital that workers know they are respected and valued at work in order to keep them.

“Companies in any industry that offer their people a strong culture that gives them the peace of mind and tools to be their absolute best will attract and retain the very best talent at the end of the day.”

Ralph Esposito

President of Northeast and Mid-Atlantic division for Suffolk

Anirban BasuPermission granted by Associated Builders and Contractors 

The culture of change isn’t just as simple as being nicer, and it’s not just for the younger workforce. If the industry is to attract women and minorities, typically underrepresented groups in the workforce, there needs to be a change in every jobsite culture to create a more welcoming environment. 

“If you’re going to start attracting people who’ve typically been underrepresented in the industry, it’s time to drop the pinup calendar in the jobsite trailer,” said Turmail. “It’s time to think twice before you make a joke.”

To the superintendents or managers who may resist the cultural change, Turmail suggested it may be an easier decision for them when they must deliver a project on a tight schedule, and need all the help they can get to complete it.

Tied in with that example is the need to remove the “macho ethos” around construction, Turmail said. Equipping workers with the tools to say when they’re struggling with mental or physical health can make it easier for them to heal, recover and return to work, while being more productive.

The best jobsites have an inclusive culture, spearheaded by leadership that encourages workers to challenge each other and themselves to be the best they can be every day, according to Ralph Esposito, president of Suffolk’s Northeast and Mid-Atlantic division.

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“Suffolk Chairman and CEO John Fish often says, ‘Culture eats strategy for breakfast’ and I think he’s right,” Esposito said. “Companies in any industry that offer their people a strong culture that gives them the peace of mind and tools to be their absolute best will attract and retain the very best talent at the end of the day.”

Alison Tripp, national recruiting leader for DPR, echoed that sentiment, saying that contractors should strive to have workforces that represent the communities in which they build, and can therefore work to build a safer, more advanced jobsite.

Technology and safety

The human aspect of construction makes it less feasible to turn to a completely automated industry, and no matter what, there will have to be someone on the jobsite to keep things running smoothly.

Brian TurmailPermission granted by Associated General Contractors of America 

The kind of technology that will aid construction is the one that benefits worker health and productivity, said Turmail. He imagines more tools like exoskeletons designed to reduce injuries or stress on a worker repeatedly lifting heavy objects, or a rebar-tying robot, which can complete a task that often creates extreme strain on workers.

Even something like a drywall robot or machine that can complete a task allows a worker to step back and get a few feet away from the action on a jobsite, creating a safer environment.

For Basu, technology returns to the issue of a worker’s desire to have a safer jobsite and more predictable environment. Some workers leave construction for manufacturing, but were the industry to continue to turn to modular prefabrication, perhaps that could attract more workers to stay and enjoy the predictability of working in a factory.

Sizemore, however, said tech’s biggest payoff is in recruiting. Showing off high-tech GPS-guided cranes or software used on site can show that jobsites are modernizing quickly, and there is a place to apply the skillset many young workers have with their experience wielding technology.

Building a sense of pride

According to both Turmail and Sizemore, there is one simple recruitment tool that can show young people what they can get from construction: pickup trucks.

Showing high schoolers someone just a few years older than them who can say they put their head down, worked hard and have now bought their own pickup truck could be an effective way to show people the accomplishments someone can make quickly in the industry.

Turmail suggested showing a jobsite parking lot full of new pickup trucks as a potential recruiting tool to workers, perhaps in comparison to another lot with less exciting vehicles.

But beyond a shiny new vehicle is something construction offers that so many other jobs don’t, Turmail said: the ability to build something out of nothing and to show that to friends or family. There is an inherent sense of pride to construct something that will last decades.

“Construction workers, if they’ve ever driven someone they know around town and pointed out their buildings or their bridges or their power plants; telling those stories is very impactful,” he said.

Follow Zachary Phillips on Twitter

Filed Under: Commercial Building, Labor/Safety