Data Center Industry Locations: Data-Driven Growth

As the demand for data continues to expand exponentially, new data centers are being built on sites closer to consumers (also known as “edge” locations) and modular, pre-fab units are speeding construction.

By the BF Staff
From the January/February 2020 Issue

According to JLL’s 2019 Data Center Outlook report, the demand for data is altering the data center landscape. The exponential growth of data consumption is creating an imperative that requires data centers to be closer to their customers, resulting in more “edge” locations. The burgeoning demand for data is forcing data center operators to increase speed, security and efficiency.

data center industry
(Photo: VEDP)

JLL projects that labor costs associated with the construction of data centers will continue to increase due to a severe labor shortage, which is dragging out data center delivery times and stretching budgets.

Data center designs have evolved considerably from five years ago, JLL says. Modular and scalable construction is transforming the industry by improving efficiency while reducing the investment for MEP (mechanical, electricity and plumbing) capacity. The combination of modular designs and reduced investment for MEP provides cost savings for developers, enabling them to offer competitive rents, which in turn helps tenants purchase more efficient and powerful servers, JLL’s report says. Fortune 500 companies are demanding rapid delivery times, adding pressure on developers to speed construction and meet completion deadlines. Modular construction enables developers to cast prefabricated walls off-site to ensure a speedy, continuous workflow on-site, the JLL report says.


Virginia is home to the largest assemblage of data centers in the world, with Northern Virginia alone accounting for more than 100 (out of 504 known hyperscale data centers worldwide) that total more than 13.5 million square feet of data center space. Synergy Research Group estimates that 25 percent of U.S. hyperscale data centers are located in Virginia.

In Northern Virginia, network connectivity traces its roots to the U.S. government’s experiments in wide-area fiber optic networking in the 1960s. Today, an intersection of mission-critical fiber backbones connects Virginia to all major markets in the U.S., along with the highest density of dark fiber in the world. In fact, 70 percent of internet IP traffic is either created or passes through Loudoun County’s “Data Center Alley,” making Ashburn the epicenter for global interconnection.

However, there’s more to the story.

Virginia’s abundant, affordable electric power and growing sustainable energy generation, its business-friendly environment (including state and local incentives for the data center industry), stable climate with minimal natural disaster exposure, and educational initiatives training a tech-savvy workforce all support the continued growth of data centers across the state.

The importance of the coordination between electric utilities, local government, and state agencies to attract new business and support existing data center expansions can’t be overstated. In Loudoun County, the approval process for data centers has been streamlined through a fast-track program, while Dominion Energy’s ability to plan ahead and keep up with unprecedented development now supports 1,027 megawatts (MW) according to the CBRE 1H2019 North American Data Center report.

In 1992, a consortium of private companies founded Metropolitan Area Exchange, East (MAE-East). A year later, the National Science Foundation awarded MFS/MAE-East a grant, establishing it as one of four original Network Access Points, along with Chicago, San Francisco and Pennsauken, NJ.

Rich Miller, founder and editor of Data Center Frontier, said data center momentum began to accelerate in Northern Virginia in the late 1990s, when America Online located its headquarters in Dulles and Equinix built its first data center nearby. “The Equinix campus quickly became the web’s busiest meeting place, creating a powerful network effect in which each new connection adds to the value of its digital ecosystem,” he said.

After the dot-com bust that began in 2000, internet purpose-built data centers didn’t come back until 2007 with the development of the DuPont Fabros Technology (DFT) VA4 data center, the result of a collaborative effort to proactively attract data centers to Ashburn.

Hossein Fateh, CEO and co-founder of DFT, provided the original hyperscalers (e.g., Yahoo!, Microsoft and Facebook) a revolutionary infrastructure design: point-of-delivery architecture, a repeatable design pattern that maximizes scalability.

In 2007, Digital Realty Trust made a significant entry into the Ashburn market, acquiring Loudoun Exchange’s first three buildings. In June 2017, Digital Realty announced a merger with DFT, creating the largest single portfolio of data centers in Northern Virginia. Despite those successes, it was a project Virginia didn’t land that helped launch the Commonwealth to its current heights. In 2009, Apple decided to build a $1 billion data center in Maiden, NC, instead of Virginia. The next year, Virginia significantly expanded the state’s data center sales and use tax exemption on computer equipment.

In Virginia, data center companies receive exemptions for sales and use taxes on equipment and software if they invest more than $150 million in capital investment and create 50 new jobs paying at least one and one-half times the average prevailing wage, with those requirements lowered for projects located in unemployment-distressed communities or in Enterprise Zones.

The Virginia General Assembly recently extended those economic incentives through 2035.

In addition, many localities offer reduced personal property taxes on data center computers and related equipment. In 2018, the General Assembly enacted a bill that created a specific classification for data centers for valuation purposes, assessed at the local level.

Data center strategist Allen Tucker has tracked data center activity in Virginia for more than 20 years. He recently compiled data on net absorption for co-location data centers located in the top six U.S. markets from 2015 to 2018. Northern Virginia data center leasing accounted for 62 percent of the megawatts absorbed in the top six U.S. markets during 2018, a significant increase from 44 percent of total bookings in 2017.

Additionally, Tucker has projected Virginia leading the pack in likely end-of-year 2019 net absorption, with the caveat that one large hyperscale booking in any of the top six markets could shift the numbers higher. Hyperscale leases can be massive, often 10MW to 20MW or much larger, which drove a record 270MW of bookings in Northern Virginia during 2018.

Tucker noted that Northern Virginia data center leasing declined to 86MW in the first half of 2019 compared to the record-breaking 173MW booked in the first half of 2018, but also pointed out that no other data center market in the world has ever exceeded 70MW of annual absorption.

Amazon is just one of the global cloud giants often referred to as “hyperscale” companies that have a significant presence in Virginia, including Microsoft Azure/Office 365, Facebook, Alphabet’s Google Cloud, IBM Cloud, Oracle Cloud, Apple, Alibaba, Yahoo!, Uber, LinkedIn, and Dropbox, along with many other household names.

The public cloud lives in these data centers. The relentless growth of data continues to be driven by e-commerce, wireless networks, social media, streaming content, software as a service, artificial intelligence, machine learning, virtual reality, gaming and machine-to- machine communication, also known as the Internet of Things (IoT).

All those factors point to continued growth in cloud services. In an October research note tracking global hyperscale data centers, John Dinsdale, chief analyst and research director at Synergy Research Group, noted that an additional 151 hyperscale data centers were in various stages of planning or building.


Data center campuses have popped up in other Virginia communities, including Prince William County and the city of Manassas in Northern Virginia. A combination of appealing land prices and support from the Northern Virginia Electric Cooperative (NOVEC) has created an additional data center corridor often referred to as “Innovation Alley.”

Another reason for increased development in the area is that hyperscale cloud providers prefer more than one availability zone in a region in order to provide customers with greater resiliency for their workloads. These factors also help to create demand in other areas of Virginia, including Henrico County, home to Facebook and Bank of America facilities.

Activity in Henrico County has been buoyed by its location, just 100 miles from the MAREA-BRUSA subsea cable landing station in Virginia Beach.

“This is one of the first examples of new data center markets emerging around the strategic changes in the subsea cable market,” Miller said, “where new cable routes are guided by the needs of hyperscale customers who want to control their data and costs.”

Hyperscale companies are finding willing partners in Virginia’s energy utilities, which have been responsive to demands for renewable energy. Dominion Energy and AWS have partnered on six projects totaling 260MW in Virginia that involve long-term power purchase agreements to provide solar energy to support AWS’s renewable energy goals, while Facebook’s data center will run entirely on renewable energy.

In March 2018, Microsoft announced the purchase of 315MW of energy from two new solar projects in Virginia. This represents the single largest corporate purchase of solar energy ever in the U.S. Dominion’s solar capacity has increased by more than 630 percent since 2015, with nearly 745MW in operation or under development.

That’s not the only renewable energy source where the Commonwealth is leading the way. In September 2019, Dominion announced its ambitious Coastal Virginia Offshore Wind project, the first wind project in the United States built by an electric utility company. The company estimates the project will generate more than 2,600MW of energy by 2026.

A rapidly growing data center industry requires an educated workforce with proper skills to support the hyperscale growth, the digital transformation of businesses, and numerous government agencies and contractors with significant operations in Virginia. Amazon Web Services launched its first cloud associate’s degree with Northern Virginia Community College in 2018.

Teresa Carlson, vice president of worldwide public sector business at AWS, called the new degree program “an exciting new step in creating a cloud workforce—a key component of the emerging tech skill set needed to fill the 21st-century talent pipeline.”

The expansion of the AWS Educate program includes grants to enhance K-12 computer science programs, the addition of nine community colleges, and five new university participants (Hampton University, Old Dominion University, Virginia Commonwealth University, Virginia State University and Virginia Tech). George Mason University announced its planned four-year degree program with AWS in June.

In a nutshell, Virginia welcomes data centers with open arms, and the results over the last decade speak for themselves.


When it comes to data center site selection, the nation’s heartland is fast becoming a darling of the industry.

For the last decade, Microsoft, Google, Facebook and Apple have invested billions in hyperscale data centers in Iowa, Nebraska and Ohio.

And now, Indiana, a late-comer to the industry, is determined to leapfrog over the competition. A new law that took effect last July offers unprecedented tax incentives for data centers, designed to make Indiana an instant player on the national data center scene.

For electric cooperatives in rural areas, that’s welcome news. “We’ve had multiple serious inquiries and visits regarding data center development since the legislation became law in July,” said Harold Gutzwiller, manager of key accounts and economic development for Hoosier Energy, an 18-member electric cooperative serving 59 counties in central and southern Indiana and southeastern Illinois. “The interest in Indiana, particularly southern Indiana, is definitely there.”

The interest stems from Indiana’s gutsy move to exempt the state’s 7 percent sales tax on equipment, infrastructure and electricity costs for up to 50 years, depending upon the level of investment.

If a company commits at least $750 million to a data center in the state, the sales tax exemption lasts 50 years, the longest exemption period available in any state. For investments less than $750 million, the sales tax exemption drops to 25 years.

“The new law puts the state in a much better competitive position,” says Tim Comerford, senior vice president of the site selection firm Biggins Lacy Shapiro (BLS) and managing director of BLS affiliate Sugarloaf Associates, an energy services company.

Exempting data-center related equipment such as routers, servers and other computing hardware that need to be changed out every three years as well as electricity adds up to substantial savings for this capital and energy intensive business, says Comerford.

“All that refresh used to be subject to sales tax—not anymore. Combine those savings with the option for local communities to exempt this very expensive equipment from personal property tax, and Indiana has catapulted into a major player for data center site development.”

Indiana’s three-tier investment threshold based on population offers distinct advantages to the state’s rural communities, many of which are served by not-for-profit electric cooperatives. To qualify in a county of 100,000 or more residents, a data center investment must total at least $150 million over five years; for counties of 50,000 people or less, the investment threshold drops to $25 million.

Southern Indiana’s advantages, Gutzwiller noted, stem from its central location near growing urban areas, an abundance of long-haul fiber, and a strong history in welcoming major power consumers in the manufacturing and agribusiness industries. With a capacity for growth and local expertise in meeting the electric needs for high-demand, “always on” facilities, Hoosier Energy and its members believe they offer a competitive edge worth looking into, he said.

As soon as the ink was dry on the state legislation, the generation and transmission cooperative partnered with consulting firm BLS to identify potential sites throughout its 15,000-square-mile service territory. The due diligence is paying off. Several sites show promise, Hoosier Energy says, including one in the Greensburg Business Enterprise Park in Greensburg, Indiana.

“Thanks to the diligent and proactive efforts of our wholesale power provider and our local EDC director, Bryan Robbins, the Greensburg Business Enterprise Park has been identified as a preferred development site for a data center,” said Brett Abplanalp, CEO of Decatur County REMC.

“This is an exciting opportunity for potential growth of our cooperative and community. A data center site will have major economic, education, and social impacts. We are fortunate to have such strong economic development partnerships and support from our community and power provider,” he added.

Data center site selectors look for land, preferably greenfield options conducive to quick buildouts, as well as a robust electrical infrastructure and access to long-haul fiber optic cable routes, Comerford noted.

Additional considerations include road access, potential security risks, pipeline proximity and facility orientation. “Data centers require controlled environments on the inside and out. Is it dusty? Are there any security risks? These are the things that need to be taken into consideration,” Comerford added.

Renewable energy is another key requirement for companies such as Facebook, Google and Amazon with corporate sustainability requirements. The trend toward construction of green data centers that promote energy efficiency is something Hoosier Energy knows something about.

The cooperative built a LEED-certified gold building for its headquarters in Bloomington, IN and works with its member distribution cooperatives to offer ongoing energy efficiency programs for commercial and industrial consumers in the region. Hoosier Energy also has been steadily adding renewable energy resources to its generation portfolio for the past two decades.

“Our member-owners work very hard to understand and meet the electric needs of their customers,” Gutzwiller said.

As a not-for-profit power supplier not subject to state regulatory oversight, Hoosier Energy has the flexibility to offer wholesale electric rate incentives. Hoosier Energy’s economic development rider, for example, discounts the cost of electricity for the first six years of a project, Gutzwiller said. A new market-based rate for consumers that use large amounts of power is another incentive the co-op offers.

That means large investment—just the kind the state’s data center legislation is designed to entice.

“In the case of data centers,” says Gutzwiller, “that means doing our homework to understand the site pre-qualifications so we can streamline the process. Once a decision is made, we want to land it quickly. For small rural counties that may be losing population, a $25 million investment would be quite a boon to the economy.”

Comerford agrees. “Laying the groundwork is a smart move. Demand is growing, and those who are proactive will be successful in attracting these investments.”

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