How tech giants are driving US construction trends
Technology powerhouses like Apple, Microsoft and Alphabet (Google’s parent company) have boomed far beyond their West Coast roots, ranking among the largest firms in the world. Their growth is not only measured in sales or market capitalization, but also in employees, scope of services and the facilities that are constructed to accommodate them.
Internet retailer Amazon doubled its workforce over the past two years to 613,000, the New York Times reported, while Google expanded its pool of workers 35% to 94,300 and Apple 14% to 132,000. But even in Silicon Valley, the talent pool has its limit. This workforce constraint, coupled with sky-high costs of living that threaten to edge out any remaining talent, are driving tech giants to set up shop in cities with highly educated workforces like Washington, D.C., New York City, Boston and Austin.
Amazon’s hyped “HQ2” search culminated in the surprising choice of not one, but two new headquarters locations in addition to its Seattle home base. The company announced in November it will invest more than $5 billion and employ more than 50,000 between New York City and Arlington, Virginia, locations.
Google, meanwhile, remained under the radar as it laid the groundwork for a $1 billion Manhattan campus called Google Hudson Square. The firm indicated in its December announcement that it’s “growing faster outside the Bay Area than within it,” with both offices and data centers springing up in Michigan, Colorado, Tennessee, Alabama and more.
Of all the construction projects these firms undertake, corporate offices and campuses tend to garner the most attention, with city leaders salivating over the jobs and economic benefits such projects could bring to their region and with cutting-edge designs that raise the bar for corporate social responsibility.
Several buildings recently added to Facebook’s Frank Gehry-designed Menlo Park headquarters, for example, are lined by acres of rooftop green space and include such features as a graywater system designed to save 17 million gallons of water annually as well as a photovoltaic system to generate 2 million kilowatts per year.
But construction activity spurred on by such firms is neither limited to major urban areas nor corporate office facilities. Contractors in small cities and rural towns, too, benefit from tech giants’ sustained demand for two other types of facilities: data centers and fulfillment centers.
The unsexy construction boom
ConstructConnect, which lists the top 10 largest project groundbreakings in the U.S. each month, counted nine “high-tech data and fulfillment center” projects in the mix during 2018. Apple, Amazon, Facebook and Microsoft were the prominent owners, the construction data company found.
Lexington, Kentucky-based Gray Construction is the general contractor on one of these projects — a $325 million Amazon fulfillment center underway in Bessemer, Alabama, which is the tech giant's second and largest such project.
“Right now, we’re seeing a rise in the distribution and fulfillment market” driven by tech and retail companies, and particularly Amazon, which uniquely has a “foot in both worlds,” Jeff Bischoff, executive vice president of business development at Gray told Construction Dive.
Amazon sprinkles these facilities across the country and in strategic proximity to its consumer bases, but even with its seemingly bottomless profits, the company can’t simply build wherever it would like.
The labor shortage, which has been crippling the construction industry for years, is also putting a roadblock in the way of several tech giants’ building plans, Bischoff noted. Labor availability is consideration when choosing locations, he said. But sometimes, for various reasons, a building must go up in a relatively rural area, necessitating a scramble for, say, 50 pipe fitters, 10 experienced foremen, etc., at what seems like a moment’s notice, given tech firms' fast-paced nature.
General contractors with the right portfolio can often snap up these opportunities, Bischoff added. “The bigger companies that … have the resume for that market, they certainly have a strong foothold,” he said. “But the smaller companies are getting a piece of the pie, if you will, as subcontractors” or suppliers.
Gray is well-versed in both data center and distribution and fulfillment center construction, but when it comes to getting smaller regional contractors on board, there’s “a pretty big learning curve” to meet the technical requirements at the speed to market that Amazon and its ilk require for its projects, Bischoff acknowledged.
Pushing the envelope
This pressure is especially felt in the data center sector, according to Tom Maples, a project executive at DPR Construction who oversees data center business and has worked with Facebook and other tech giants under non-disclosure agreements.
“They are very schedule-driven and they have aggressive rollout programs across the country and across the world,” he told Construction Dive, largely because they’re scrambling to keep pace with their own demand.
This appeal has been pronounced in the overall U.S. construction market, according to Dodge Data & Analytics, which found that data centers made up about one-fifth of the 2017 projects it tracked that were valued at $100 million or more. These 10 projects were collectively valued at $3.4 billion and added 5.8 million square feet, indicative of the “hyperscale,” expansive facilities that data-rich companies require.
Maples said that demand for data centers, along with square footage per facility, has boomed but not yet hit its limit, according to Maples. “The hyperscale [sector] is in a very dominant position,” he said, and while that may only be the case for another year or so, it will continue to be the primary driver as companies push to get more facilities online.
Apple, for example, recently announced that it would spend $10 billion over the next five years to expand four of its existing data centers as well as construct a new facility.
The giants “don’t have enough capacity to build enough, fast enough and last through next year’s timeframe” to store and manage their growing amounts of data behind a vast ecosystem of connected devices, Maples said. And so they’re constantly pushing the envelope by establishing agreements with equipment vendors, among other methods, which eliminates long lead times that typically plague data center projects.
This means the pressure has “doubled down” on design and construction partners to develop, permit, construct and install equipment as quickly as the tech firms’ supply chain management allows, he said.
But innovation is coming about as a result, said Maples. While tech giants have been the “thought leaders” in energy-efficient design and economical power solutions, he said, contractors have stepped up their use of prefabrication and other lean methods to better serve them.
Follow Kathleen Brown on Twitter