Office & Data Center Construction

Digging into *thrilling* new Census Bureau data

Until last week’s construction spending data release, the Census Bureau lumped spending on data centers into the Office category. That was mostly fine prior to 2020. Data centers were a small share of total office construction, and there was no reason to be particularly interested in how much we were spending on actual office buildings.

That changed in the 2020s as demand for data centers exploded and demand for office buildings imploded because of remote work.

Thankfully, the Census Bureau now has data centers broken out from general office buildings going back to January 2014 (If you want to download the data, click “Private” under Monthly, Seasonally Adjusted at this link).

As you can see, it’s been a bad couple years for office building investment and a great couple years for data centers.

This trend—office down, data center up—is especially glaring if you look at the percentage change in spending over the past five years. Since May 2019, spending on office buildings has plummeted 19% while spending on data centers has surged 207%. This is exactly what you’d expect if people are meeting on Zoom instead of in person.

The Upshot for General Office Construction

The office implosion has caused (and will continue to cause) problems, but the decline in construction spending is a pretty minor one. Banking stress and falling tax revenues for cities, for instance, are bigger concerns, and massive investments in data centers, manufacturing, and infrastructure have softened the blow to the construction industry.

Looking ahead, lower interest rates should help.

Still. This is pretty bleak.

The Upshot for Data Center Construction

My friends, family, and coworkers are sick of me saying, “I should have been a data center developer.”¹ I won’t stop. Demand for data centers will keep rising because demand for data—for streaming services, for video calls, for AI, for driverless cars, for storing a bad video of fireworks on your iCloud—will keep rising.

And I know, the first graph shows that construction spending on data centers is still about 50% lower than spending on office buildings, but the core and shell (the basic building structure) of a data center usually accounts for less than a quarter of the total cost. Including the unthinkably expensive equipment that goes inside a data center, the U.S. is on pace for way more than $100 billion in data center investments in 2024.

What’s Next

I have a couple thousand words worth of drafts in our election primer series, but I’m not putting more work into that until we get a little clarity on who the Democrats will nominate. Betting markets, for what it’s worth, have Kamala as a slight favorite at the time of this writing.

So our next post will be Week in Review, our every Friday piece that gives you everything you need to know about the economy in a breezy, five minute read. Week in Review is only for paid subscribers. If that’s not you and you want it to be, just click the button below.

1. There is absolutely no reason to think I would be a good data center developer.