The Bureau's latest monthly construction spending report details the cost of data center investments for the first time. It confirmed the long-held belief among industry commentators that data centers are the fastest-growing construction segment in the U.S. market.
Data center construction, formerly part of the Bureau's "office construction" category, has more than tripled over the past three years. The Bureau's report showed that investment in the sector has reached more than US$27 billion (annual pace) and continues to grow, up 69% year-on-year in May.
Although data center construction costs account for less than 2% of total construction spending, growth over the past decade—and especially over the past three years—has contributed to increased structural steel consumption in the U.S. construction industry.
MEPS International US steel market consultant Laura Hodges said steel producers and servicers need to understand the entire data center value chain and target these companies to fully benefit from "extraordinary growth" of the sector.
U.S. Leads in New Data Centers
The United States is the epicenter of the data center industry, according to Data Center Magazine. It has the largest number of data centers in the world (approximately 2,700), followed by Germany, the UK, China and the Netherlands. Moreover, the total number of data centers in the US easily exceeds the number of data centers in the next five largest countries combined.
Data centers require a reliable and plentiful supply of electricity, which is one of the reasons for their high concentration in the United States. The U.S. Department of Energy estimates that data centers account for about 2% of U.S. electricity consumption. A skilled workforce, reliable water supply and low risk of natural disasters are also key factors when choosing a data center location. Consequently, Northern Virginia is the largest data center market in the United States.
The global surge in data center construction has been accelerating for several years. Recently, the emergence of artificial intelligence and cloud computing has accelerated the pace of growth. McKinsey, a global consulting firm, predicted that this boom will continue, growing by 10% annually until 2030. However, based on expected demand and current supply, this forecast may be an underestimate. CBRE, a commercial real estate services and investment firm, estimates that just 0.9% of data center capacity in Northern Virginia was unoccupied in the first quarter of 2024, despite significant new development during that period.
Most steel products benefit from data center boom
Demand for increased data center capacity in the US bodes well for the country's steel industry. Nucor's recent acquisitions of Southwest Data Products (2024) and Hannibal Industries (2021) and subsequent creation of the Data Systems business unit highlight the growing importance of data centers to future demand growth in the U.S. steel industry.
Steel is used in various applications in data center construction. In addition to the traditional role that steel plays in non-residential construction, it is also used in racking, server enclosures, cooling systems, piping and power generation equipment, supporting demand for both flat and long products.
Hodges said: “The number of manufacturing and construction firms involved in data center construction is currently quite scattered. There are construction firms, rack and enclosure manufacturers, heating, ventilation and air conditioning (HVAC) system manufacturers, power generation equipment manufacturers, piping companies, and others. That's why acquiring Nucor and creating a separate data center business is so important as they try to consolidate in this market.
“Service centers or steel manufacturers need to understand the entire value chain for setting up a data center and target these companies or start acquiring some of the players in the sector. Successful steel companies will benefit most from this extraordinary growth, which is expected until at least the end of the decade.”
While the data center construction trajectory is strong, MEPS International does not expect this trend to lead to higher U.S. steel prices in 2024. MEPS predicts that flat-panel prices
