The Decisive | Season 7 | Ep.11 - AI Data Centers: What Gets Built—and Where

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Kristen Hallam:

You're listening to The Decisive Podcast, insights and analysis to empower confident decision-making. Welcome to The Decisive Podcast from S&P Global Market Intelligence. I'm your host, Kristen Hallam. Artificial intelligence and cloud computing are fueling a global wave of data center construction, but delivering that capacity requires developers to secure power, water, permits, financing, suitable sites, and community support. Quite a list. Joining me to explore this topic is Jeannine Cataldi, Associate Director of Global Construction at S&P Global Market Intelligence. Jeannine oversees global and U.S. construction forecasts and previously analyzed state, metropolitan, and real estate markets.

Drawing on a new series of reports from her team, we'll examine what is driving the boom, where growth is strongest, and which constraints could determine whether planned projects become operational capacity. Jeannine, welcome to The Decisive.

 

Jeannine Cataldi:

Thank you, Kristen.

 

Kristen Hallam:

So Jeannine, what prompted your team to take a closer look at data center construction, and what are clients most interested in understanding?

 

Jeannine Cataldi:

So data centers have moved to the forefront of most conversations in recent years, and from a construction perspective, there's been a lot of interest from our clients as to how the buildout is expected to move forward following this recent rapid pace of development, what constraints developers might be facing with this buildout, and where do we expect to see development occur in the coming years.

 

Kristen Hallam:

Now, data center investment globally is forecast to reach $370.1 billion in 2026, up from an estimated $132.6 billion in 2023. What is driving that surge and how much of that is tied specifically to AI?

 

Jeannine Cataldi:

Most of the development in recent years is absolutely tied to AI. In late 2022, ChatGPT was released, and this opened the AI floodgates, if you will, and was followed by an accelerated ramp-up in construction of data centers that were focused more on AI purposes. So prior to this point, data centers were mainly used for traditional cloud storage. You placed files in the cloud, and that was pretty much it.

Now the focus of data centers is on training AI models, which require substantially more compute power and bandwidth. Training these models requires iterative loops and a substantial amount of information processing, all of which runs nonstop. So to accommodate this increased demand for processing power, which continues to expand at an unbelievably rapid pace, data center capacity has to expand to keep up.

 

Kristen Hallam:

All right. Now, not surprisingly, North America accounts for roughly 65% of investment globally, yet growth is expected to slow after 2028. Jeannine, which constraints, especially thinking about power availability, permitting, and financing, pose the greatest risk and how are developers responding?

 

Jeannine Cataldi:

So to set out a little bit of background here, the North American market for purposes of our data consists of the U.S. and Canada, so largely the U.S. The U.S. is the largest data center market in the world, and spending on construction of data centers is actually measured and reported by the U.S. Census Bureau. This is one of the few areas where we have actual data on data center construction. So according to this data from the Census, spending on data center construction moved from 6% of commercial construction in the United States in 2022 to about 21% in 2025. That's a huge leap. On an annual basis, it grew 50% in 2023, 74% in 2024, 41% in 2025. And so far this year through August, spending is higher by 73% compared to a year ago. This rapid increase in spending has actually led to greater scrutiny of these projects and greater awareness of the impacts on local communities.

One of the biggest constraints we see in North America is related to grid connectivity. Data centers require significant amounts of energy to run, and seeing how they run 24/7, concerns related to grid congestion, expansion of the grid to handle all of this demand— these are a key focus. Now, expanding the grid takes years. There are lead times for the necessary transformers and turbines that range from one to three years, if not longer. There's also lengthy permitting times because you have to go through local, state, and federal processes to get these permits. So one way that we see developers responding to this constraint is by self-supplying power. So what this means is that they build sources on site where their data centers are. It can be fossil fuel-based or renewable-based, and these sources are used to directly power the data centers.

We're also starting to see energy companies and some of the larger developers like Google, Amazon, Meta, and Microsoft, working together and signing power purchase agreements. And what these agreements do is they will eventually bring additional power capacity, which in many cases is nuclear power, to the market by uprating existing sites. And what this means is permanently increasing output by upgrading equipment, operational processes, basically squeezing more out of an existing facility. But these processes all take time. Whether it's expanding the grid, building onsite and self-supplying, or upgrading an existing site, all of this along with greater scrutiny on power demands and a tightening of regulatory environment will all combine to slow the buildout in North America.

 

Kristen Hallam:

Very interesting. And those were some big percentages that you gave us there. So it'll be interesting to see, like you said, how that changes over time and how the impact shows up in those figures. Let's move to Latin America for a moment. Latin American investment is projected to grow at a compound annual rate of 28% between 2025 and 2030, compared with 15.9% in North America, although that's from a smaller base. Why are São Paulo and Querétaro leading the region, and which other markets should we be watching?

 

Jeannine Cataldi:

Yeah, so this market, the Latin American market, is actually one of the smallest globally. It represents just about 2% of construction expenditures. However, this rate of growth over the next 5 years is second only to Europe. So this is a fast-growing market, and it's expected to strengthen as developers shift from high-cost, high-density areas like those in the United States to areas that are still within close proximity to the U.S., but also where there's more available space and support for development. So within the Latin America region, the 2 markets that you mentioned, São Paulo in Brazil and Querétaro in Mexico, these areas contain or are in close proximity to financial centers in their respective countries with important stock exchanges, high concentrations of financial service companies, and corporate headquarters. Additionally, both of these markets have very strong industrial bases. So in São Paulo, which is the largest data center hub in Latin America, this area benefits from having a high concentration of internet service and cloud service providers, high fiber density, and access to undersea cable routes that reach as far as Europe.

So the environment in São Paulo is one of great connectivity, and this is helping to attract these data centers. Renewable energy sources are also widely used across Brazil, and this also is helping to attract data center developers. Now in Mexico, Querétaro is the main data center hub. It is centrally located. It is close to Mexico City. It benefits from the recent increase in nearshoring activity, and it also has a very business-friendly environment. Now Mexico is more reliant on fossil fuels, which may slow development in the future, but both markets in Brazil and Mexico have very strong support from the federal government for data center development. They have laws related to power and water usage, which are clearly identified, and developers coming in have a clear sense of what is expected when they build in these markets.

Some other areas in the region that are benefiting currently, and we expect to see stronger growth as there's kind of a shift from maybe central hubs to more secondary markets, but some of these markets are Santiago in Chile, as well as markets in Argentina, Peru, and Colombia. And again, one strength in this region is its strong reliance on renewable energy, such as solar, wind, hydroelectric. This allows developers to bring facilities online quicker than if they're relying on traditional fossil fuel sources. And another is access to undersea cable routes, which I had just mentioned in Brazil. These undersea cable routes allow very quick connectivity, but they connect the Latin America region within the region, as well as connectivity to the U.S., Europe, and Africa.

 

Kristen Hallam:

Yeah, I hadn't thought about the undersea cable connections. That's very interesting. Good to know. And thank you for highlighting some additional markets other than the ones I called out in the question. So, Jeannine, like we've alluded to, there are concerns about electricity and water use, land, and other environmental effects, and these concerns have delayed or halted some projects. What helps a project secure resources and community support, and how are cooling technology and site selection changing the equation?

 

Jeannine Cataldi:

Yes, Kristen, we have absolutely seen an increase in delays, some even cancellations, while developers kind of step back and either rescope projects to align with local regulations related to power and water. They're also stepping back, and some of the halts that we see are due to environmental concerns with noise, air, and water pollution. But as these issues related to power and water have become more prevalent and more in the public eye, developers and governments are starting to work together to find alternative ways to make sure these resources aren't being taken away from consumers. So we're not trying to burden the consumers. As I mentioned earlier, when we were talking about North America, we're starting to see this shift happening as developers work with energy providers to increase capacity. This working together can help alleviate some concerns that surround energy supply and demand. In other areas, being able to rely on renewable sources, especially ones that can be built on site, allowing data centers to kind of self-supply their own power. This can also allow the data centers to come online faster because they don't have to wait for access to the grid or wait for the grid to expand, and they're not taking from consumers.

Water access is another flashpoint that doesn't quite get talked about as much. It's not as prominent, but developers have been moving towards using a closed-loop system for cooling, which this is just reusing water through a circuit, running it through without pulling new water consistently. There's also been a push across many markets for the use of reclaimed wastewater to be used in place of freshwater sources. As I said, water doesn't receive as much attention as power, but it is a constrained resource, and it's vital for developers to work with local communities to balance the usage. And speaking of communities, support from within local communities has been eroding at a very quick pace across the globe. But what we're starting to see is developers are trying to get out there. They're trying to get into the communities and provide transparency surrounding their projects. So explaining how they're going to power their facilities, cool their facilities, what their energy and water usages are going to be, and how they're going to account for the local needs is really key.

And I think this is where you're going to see development shifting to areas where there's just more acceptance and more transparency.

 

Kristen Hallam:

We'll definitely keep an eye out for that. Now, Jeannine, many of the challenges that we've discussed in this episode—power and water availability, permitting, community acceptance, which you all just walked us through—they're not unique to the Americas. At a high level, how are those same constraints shaping data center development in Europe and Asia Pacific?

 

Jeannine Cataldi:

Yeah, so these constraints, we're seeing them globally. It's definitely power grids are constrained. We need things to be built up more. Water, there's drought, there's different restrictions, and it is a constrained resource. So in Europe, really grid congestion and lengthy lead times for new connections are among the biggest constraints on data center development. A facility can be built in about 2 years, but securing a grid connection can take anywhere from two to ten years across the EU, and waiting times can be even longer in some of the major markets such as Frankfurt, London, Amsterdam, Paris, and Dublin, where delays can reach anywhere from seven to ten years. Water availability is also becoming a significant challenge in these water-stressed parts of Europe, and especially in Southern Europe. Complex permitting processes and community opposition also add to the list of challenges.

Concerns about the impact of data centers on local infrastructure, resources, and the environment have led to fierce resistance in some established hubs and has led to moratoriums in cities like Amsterdam. Now, these constraints are causing project delays and cancellations, but they're also influencing where investment goes. We are increasingly seeing operators look beyond the traditional hubs towards secondary markets such as the Nordic region, which benefits from a cooler climate, abundant renewable energy, and generally supportive conditions for development. But despite this shift, we still expect to see investment in these established hubs. It just may be a little bit less there as it moves towards these alternative regions. Now, these same bottlenecks of congestion, scarcity, and community resistance are also playing out across the Asia-Pacific region. Rapid growth in data center power demand is straining local grids. It's raising consumer electricity costs, and it's potentially undermining regional carbon reduction targets.

Water availability is also becoming a source of comparative advantage, both across and within regional economies. Several markets are already water stressed, and rising demand for data center cooling is likely to intensify local pressures. South Asia is particularly exposed because population growth, agricultural irrigation, and now the data center expansion are further competing for limited supplies. Governments are likely to introduce measures to manage water use, and in India, as an example, the Gujarat state government requires data centers to source water from desalination plants rather than freshwater reserves. Now, concerns over excessive energy use, noise pollution, water shortages, and contamination are fueling local opposition to data center development, particularly in India, Australia, South Korea, and Japan. So as access to power and water becomes a greater constraint, development is likely to shift towards secondary markets, and we're already seeing activity increasing in outer metropolitan areas of Bangkok and Ho Chi Minh City in Vietnam, where land, grid capacity, renewable energy, and water infrastructure are more readily available. However, smaller contractor pools and less developed utilities typically make projects slower and more expensive than in established hubs.

 

Kristen Hallam:

Thank you, Jeannine. Now, the reports that you and the team put together are very comprehensive. We could keep going on talking about them, but it's time to wrap up our conversation. So to do that, what would you say are the one or two takeaways that you most want our listeners to remember from this episode?

 

Jeannine Cataldi:

I would say that the first takeaway is that data center construction, it's not going away. It's going to slow. We'll see it definitely slowing following this surge in development that began in 2023, which, at the end of the day, this level of spending, this rapid rate of growth is just not sustainable. Constraints are becoming more pronounced, but developers and communities are trying to work together to mitigate these. So we do expect to see increased construction of power and water infrastructure to accommodate this continued growth of data centers. So while we're waiting for the underlying infrastructure to catch up, growth may slow. And I think the second takeaway, and this is probably one of the more important ones, is we're going to see continued development in existing hubs across the globe, but we're going to see this shift to secondary markets, areas that have strong renewable energy capacity, areas with cooler environments, areas where there's strong government support for development. And with this, we're going to move away from the hubs to a more spread out data center footprint, if you will.

 

Kristen Hallam:

Right. Well, thank you so much, Jeannine, for taking the time to join us and share your insights with us. And thanks as always to our listeners for tuning into The Decisive Podcast. Until next time. Thank you for listening to The Decisive Podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.