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Location Notebook: Data Centers Betting on Nevada

Nevada was largely built by people who don’t mind taking risks with their money. So it’s ironic that one of the state’s leading economic growth opportunities at the moment is coming from data centers, an industry that sees in Nevada an opportunity to avoid risk.

February 2013
Nevada was largely built by people who don’t mind taking risks with their money. So it’s ironic that one of the state’s leading economic growth opportunities at the moment is coming from data centers, an industry that sees in Nevada an opportunity to avoid risk.

The gaming industry, and its importance to Nevada’s economy, has spurred the development of a particularly reliable power grid to serve the state. That same reliable grid is now helping to make the state attractive to the data center industry. “It’s huge,” says Brad Woodring, economic development manager for NV Energy. “Having a robust reliable power system is paramount.”

Nevada has been hit hard by recent years’ economic travails in some respects — especially its housing market, which saw new home construction fall from a peak of 40,000 in 2006 to just 4,000 in 2011. That was a major blow to construction employment, which comprises 12.5 percent of the state’s overall work force.

But even as the state’s housing market has suffered (as has its hospitality market to a lesser degree), a new growth opportunity is emerging in the form of data centers, whose developers are looking to Nevada because of its relatively low risk of natural disasters.

Apple has recently announced plans to develop a data center just outside Reno, while Switch Communications is developing what it calls a “data hotel” in Las Vegas, which will host servers for private industry, government, high-end global companies, and a variety of smaller entities.

“Nevada sits in an area of the country that is naturally protected from many of the weather or geological phenomenon that afflict much of the country — hurricanes, tsunamis, earthquakes, major snow storms, and grass or forest fires, among other things,” says Mark Thiele, executive vice president of Data Center Technology for Switch. “Specifically, in Las Vegas we also don't have any major chemical refineries or nuclear plants — each of these are considered potential risks to data center availability.”

Woodring says data center developers have taken a liking to Nevada because they are by nature risk-averse — an ironic twist for a state that has largely made its fortune from casino-going risk-takers.

“When you think about it, the Southeast has its tornadoes and hurricanes,” Woodring says. “California has its earthquakes. Some of the Eastern Seaboard has its larger storms and what-not.” Nevada, by contrast, is relatively free of disaster-level weather events — and that’s crucial for an industry whose primary value proposition is the ability to keep data safe no matter what. But it’s not just extreme weather that data centers like to keep away from. It’s pretty much everything, and Nevada’s development pattern is conducive to that as well.

“They like to be away from people,” Woodring says. “Just outside the area of Reno, where Apple is located — 16 miles out — there are no residential and few other industrial buildings. There’s nothing close to their location, so the privacy for a lot of data centers is a bonus with the geographic layout of Nevada.”

Key Data Center Drivers

Mike Dolan, Atlanta-based an executive vice president at the global real estate firm Jones Lang LaSalle, heads the firm’s Data Center Solutions Group. Dolan says data center operators look at a variety of factors: “What they look for are areas where there’s good competitive power costs and connectivity,” Dolan explains. “But a lot of them will do built-to-suits for enterprise users, and some enterprise users are somewhat agnostic to where they’re located — but with those drivers being key.”

For other users, Dolan emphasizes that location decisions will depend on whether data is mission-critical — as it would be for an Internet sales company — or is a lower priority. “Some clients have strong IT departments with a lot of personnel, and they want to be close to their [data center] facility because they’re what the industry terms ‘server huggers,’” Dolan says.

Thiele agrees that communities that have taken steps to give themselves a competitive advantage are a good location choice for a data center. “There are a huge number of enablers from the government, education, and residents that can be attractive to a data center operator,” Thiele notes. “Governments can provide incentives relative to taxation of equipment, permitting, human resource training, education credits, etc. Higher education can participate by being involved with local companies to create curriculum that supports information technology and or facilities engineering job roles. Beyond the aforementioned, solid transportation infrastructure, green and or renewable energy, reliable power delivery, and an educated work force are all keys.”

Spin-off Effects
Data centers are not major job creators, and add only modestly to the tax base, but they do generate good revenues for local utilities and pay relatively high wages for those who are hired to work there, explains Woodring. They are also seen as having the potential to open other doors.

“They do utilize the universities, that upper echelon of the mindset, so we’re able to put people back to work that have the acumen for the technological side,” Woodring says. “And any one of those data centers may or may not bring around other entities, licensing of their products if that’s what they’re selling. Maybe a headquarters.”

The potential for such spillover benefits has Nevada’s economic development community making a more concerted effort to attract data centers to the state — including utilities like NV Energy.

“We started a year-and-a-half ago delving deeper into that industry,” says Woodring. “We’ve had, over the past four or five years, a lot of globally known companies looking at Nevada. But now we’re taking it on full bore – attending data center conferences and trade shows, and talking with major corporations that have either their own data centers or are reliant on the collocation type data centers that need, or are looking for, that secondary or tertiary location for housing their information.”

In a side note, Dolan indicates that data centers have traditionally located in cities with National Football League franchises, particularly those whose technology provides for so-called on-ramps to the Internet — including New York, Chicago, Dallas, Los Angeles, San Francisco, Atlanta, and Boston. The NFL doesn’t look to be expanding to Nevada any time soon, but the data center industry appears to see an opportunity to score there.

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