Trends in Data Center Site Selection
A lack of space and developable land as well as power constraints will continue to drive data center site selection, with sustainability considerations and emerging technologies becoming increasingly important factors.
Low Vacancy Rates
Market demand for data is constantly rising and must be matched by a dramatic rise in data center construction. Available data center space in major cities is severely limited. For example, popular markets like Northern Virginia and Silicon Valley have low vacancy rates of 5.1 percent and 1.6 percent, respectively.
Finding suitable and available data center space in such low vacancy markets can be challenging, especially if a user only has six months to work with. The primary headwind for new construction in popular data center markets is limited developable land. We anticipate more vertical construction of data center space in these low vacancy markets to create opportunities to meet demand.
Power constraints are also a major concern right now in high-demand primary markets and will remain the biggest threat to new developments. This lack of land and power availability has caused some data center migration from major cities to select suburban locations throughout the U.S.
A prime example is Hillsboro, Oregon, which is in the middle of two of the biggest tech hubs in the U.S. — Silicon Valley and Seattle. According to Data Center Frontier, companies can save approximately 25 percent in operating expenses by relocating their data center use to Hillsboro from Silicon Valley, due to Oregon’s lack of sales tax and potential property tax exemptions in suburban locations like Hillsboro. CBRE ranks Portland second in the nation for tax incentives, with taxes representing only 2.7 percent of the data center project cost, significantly below the average of 8.7 percent.
Market demand for data is constantly rising and must be matched by a dramatic rise in data center construction. Edge Infrastructure
Consumers today require faster processing speeds to access content related to 5G, virtual reality, and AI. In the not-so-distant future, technologies like self-driving cars and the metaverse will require edge infrastructure. All these emerging technologies are significantly changing the way we think about data center site selection, as they require lower latency and more info to be exchanged rapidly to avoid lag or delay. This will result in a need for digital infrastructure that is closer to end-users, which will bolster demand for edge data centers, which deliver faster services, with minimal latency, in suburban locations.
Investments in edge computing are increasing and expected to climb substantially in 2022, with spending forecasted to reach $76.5 billion in the U.S. alone. Additionally, companies are now realizing that there are cost savings associated with edge data centers over the long run. In the past, companies would have their core data centers in primary markets. The cost to haul content back and forth via fiberoptic lines is extremely pricey. It is much more cost-effective to deploy a few racks into a nearby colocation data center. However, edge data centers can increase upfront costs. The circuits required to connect to all the edge sites can drive up the overall cost of the network, and the connections between major data centers used in a centralized compute architecture have become incredibly expensive.
Climate change is another increasingly important site selection factor. Sustainability is now a major focus for most corporations, and data centers are striving to develop sophisticated ways to measure their ESG impact and activities. Some of the most important data center markets will need to address concerns about water scarcity and their supply of renewable energy. On the flip side, this will likely benefit markets with bountiful clean power.
Consumers today require faster processing speeds to access content related to 5G, virtual reality, and AI. Over the years, data centers have redesigned their facilities to greatly reduce water consumption by using new technologies for water cooling, such as liquid cooling. New battery technologies are enabling data centers to use fewer and longer-lasting batteries. Data center providers are working closely with local utility companies to find more efficient ways to provide green energy options.
In November 2021, President Biden signed the Bipartisan Infrastructure Bill (Infrastructure Investment and Jobs Act) into law. This legislation allocates $65 billion toward improving broadband Internet capabilities, primarily by expanding optical fiber and 5G networks. This massive investment in digital infrastructure has resulted in skyrocketing demand for data centers.
The bill also includes funding for green energy infrastructure and innovation. Access to renewable power to reduce carbon emissions is always a primary concern when considering a potential site for a data center. The Bipartisan Infrastructure Bill presents an opportunity for utilities to upgrade power sources without passing the costs to the end-users.
Data centers are striving to develop sophisticated ways to measure their ESG impact and activities. Finally, the global supply chain has been greatly impacted by the COVID-19 pandemic and this has impaired data center development. CBRE said in its 2022 Data Center Forecast, “As uncertainty looms amid pandemic-related restrictions for markets outside of the U.S., particularly in Asia-Pacific, material shortages and increased shipping delays into U.S. ports have the potential to delay new facility developments and impact refresh cycles of data centers. These delays could drive up costs, potentially raising rents in affected markets 4 percent–6 percent.”
In sum, space, land, and power availability will continue to drive data center site selection but expect sustainability considerations and emerging technologies to be increasingly important factors over the next few years.
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Trends in Data Center Site Selection