Market Overview and Trends
As we continue to trend toward an information based economy the demand for data centers continues to grow. Data centers provide storage of and access for the multitude of digital information we rely on every second for transactions, media, research, and applications. The growth of mobile applications, cloud computing services, analysis of large datasets or “big data”, and digital news media are all increasing the demand for data centers. Growth in the data center market is occurring globally and continues in North America. Forecasts by analyst firm Canalys reveal that “the market for data center IT infrastructure globally will grow 5% on average per annum to reach $152 billion in 2016.” 1 Additionally, Canalys forecasts that “North America will remain the biggest data center infrastructure market, though its share of total worldwide investment will fall from 43% in 2011 to 41% in 2016.” 2
Data center operations consist of a blend of corporate owned (by the companies using the data) and outsourcing, with outsourcing on the rise. “Almost a quarter of all data center footprint in the North America region is now outsourced.” 3 An increase in outsourcing is being driven by growing technology costs, the need for specialized operations and management personnel, and demand for flexibility.
“Companies are expected to favor a mix of corporate owned enterprise data center space and third party space to meet their data storage needs and balance security, expertise, flexibility, and costs.” 4 While the major increase in need for cloud computing across all industries has driven demand and location of “mega-centers”, demand exists for smaller facilities as well. In a 2013 survey of data centers, 68% indicated they averaged between 10,000 and 25,000 square feet and of those seeking to expand in 2013, 59% were seeking 15k square feet or more with an average of 18.5k square feet.5
Data Centers and Economic Development – Benefits Beyond Jobs With a growing market for data centers, many economic developers have examined the potential for data center growth in their communities, regions, and states but are concerned or have faced scrutiny based over a lack of direct employment impacts. In order to understand the economic impact of data centers one must look beyond direct impact on employment. On a per-square foot of space occupied, data centers are not employment intensive. They do however provide jobs that are typically high-wage and require specialized technical skills. But to focus on jobs as the primary benefit is a failure to understand economic impact in the new and emerging economy in which knowledge and capital intensive investments increase productivity and economic output which in turn supports. Beyond direct employment and investment contained within a data center is the fact that the data stored allows multitudes of processes and informational activities to occur across all sectors of our economy. “Eliminate the data centers and there goes the service delivery; no services, no revenue; no revenue, no jobs. To put it another way, data centers are the physical embodiment of a digital services business that employs many more people than the on-site staff.” 6 As an example, with its proximity to Washington, D.C., the information demands of the federal government, companies that do business with the government, and a growing information services sector, Loudoun County, Virginia has seen significant growth in data center development in the past ten years. Loudoun has become one of a handful of data center cluster in the US. But as a direct employer, data centers contribute only a small portion to overall county employment. There are 5.2 million square feet of data centers within the County’s 521 square miles but only 1,300 people are employed by Loudoun’s data center empire.7 In 2012, Loudoun County had just over 180,000 total workers.8 However, looking beyond jobs, the industry contributed some $60 million to the county tax rolls last year.9 Capital investment still only tells part of the story of the benefit to economic development within regions. Data centers support the growth of existing businesses that need its services as well as attract information intensive businesses looking to locate near data centers for synergies. Also, the IT and power infrastructure needed to support data centers can be of benefit to other industries that are also reliant on such infrastructure including the sectors of IT, life sciences, and R&D intensive industries.
From a jurisdiction’s fiscal perspective (revenues and expenditures) an added benefit to capital-intensive industries like data centers is that they provide very little demand for services including schools, fire and rescue, recreation and parks, and public works. This combined with the tax revenue generated from them makes them a positive fiscal influence thus generating revenue which can be used to grow and diversify a region’s employment and tax base or lower taxes.
Biggins Lacy Shapiro & Company, a site location services company with expertise in the data center market, sums up the economic development benefit of data centers best: “Data centers can represent more than just jobs or capital investment, they can also mark a tangible sign that the community is broadening its industry base, transitioning into a new digital economy, and illustrating credibility and viability of the community’s economic conditions.” 10
Data Centers and Economic Development – Factors That Drive Business Attraction and Expansion So what drives location decisions for datacenters? In 2012, Camoin Associates worked with Loudoun County, VA to assess targeted industries including data centers and related information technology industries. Loudoun County has experienced significant growth in the data center industry in the past ten years and has become a national leader. In Loudoun County we found:
“Within the IT cluster, Loudoun County has strength in the data center market as the County has aggressively pursued centers and developed the support necessary to be attractive to data center operators. For example, some of the strengths for the County identified during the interview process include significant amounts of redundant fiber, stable, redundant and affordable power, favorable business climate, major customers in technology and government contractors, cooperative zoning approval process, available and affordable land, stable climate with minimal weather risks, and finally easy access to a variety of markets. These are all assets that site selectors look for when they are working with their client to identify targeted locations for future growth.” 11 So how do the factors rank in terms of importance? In a survey of data centers that had definitely planned to expand in 2013, respondents indicated that the most important factor in selecting a site for expansion is security, followed by the site meeting the specifications, power costs, connectivity and taxes.12 The precise weight given to the factors will ultimately depend on data center developers and operators based on their particular business model. Economic developers must therefore be cognizant of each factor in their expansion and attraction efforts. A closer look into the factors that drive location reveals the following:
Energy
Data centers consume significant amounts of electricity and are therefore drawn to areas where power is both relatively inexpensive and abundant. Additionally, data centers must have adequate backup systems in place should the data center’s primary power feed be interrupted. In addition to power to run the facility and computers, data centers must be temperature controlled and require systems for heating and cooling. While heating and cooling can be controlled internally, external temperatures impact costs and geographies with cool climates help reduce costs.
IT Infrastructure and Connectivity
In order to ensure the maximum responsiveness of servers located in the data center, it is important that date center sites have reliable, redundant, and high bandwidth connectivity. As a rule of thumb, there should be at least two connections to the Internet available from two different providers. Furthermore, carrier neutrality is important as carrier neutral data centers offer flexibility in choosing whatever telecommunications carrier a client may choose for their business at competitive prices.
Safety and Security
Data centers contain significant, high cost equipment to operate. Clients demand 24/7 uninterrupted operations. To protect the investment and avoid interruptions, data centers are less likely to be located in areas at risk for natural disasters including hurricanes, earthquakes, tornados, and floods as well as manmade uses that pose risk including pipelines, quarries, mines, and railroads.
Workforce Skills
As mentioned previously, data centers are capital intensive and not labor intensive. However the jobs required to operate them require technical skills and experience and can be difficult to find in some labor markets. To compete for data center locations, localities and regions will need to demonstrate that there is an available workforce to fill these occupations. The following positions are typical for data center operations:
Hardware Engineers: Mechanical and electrical engineers will need electrical engineering qualifications and a sound working knowledge of the operating systems and software in use in the data center, as they will be responsible for installation and maintenance of hardware.
Software Administration: From database administrators to capacity analysts and infrastructure specialists and security architects, the data center relies on a range of software specialists to ensure maximum hardware utilization. Qualifications may range from Microsoft Certification or other product specific diplomas to general degrees in various aspects of software use or development.
Security: Staff responsible for the physical security of the data center must have qualifications related to their positions, and need to be aware of local laws and ordinances. They will also have had background checks, and have had training specific to the data center procedures and policies.
Management: Much like any other medium to large organization, the data center may have several tiers of management, from sales and customer service managers, through operations managers to the data center manager. At each level, additional skills will be required. Managers may have business or management qualifications, or have gained on-the-job experience and moved up through the ranks of data center staff.
Sales: A sound technical knowledge of the data center and its technologies is vital for salespersons but even more important is the ability to listen to customers, ask pertinent questions, and match available solutions to their needs. They may have both technical and sales accreditation.
Customer Service: Whether it is IT help desk personnel delivering support to the customer over the phone, customer service engineers who interact with clients, or licensing or business continuity specialists who help larger businesses address the more specific issues of software licensing and disaster recovery planning; customer service staff need both a deep technical knowledge in their area of expertise and the ability to translate that knowledge into layman’s terms.
Taxes and Incentives
Costs for energy and equipment are considerable and impact the bottom-line of data centers. Taxes further impact the bottom-line and in many areas are often offset by development and operating incentives from the jurisdiction. To be effective, data center incentives should be based on capital investment, not employment. They typically include: tax exemptions, energy rebates, and property tax abatements.
While not the only factor in siting and expanding a facility, taxes and incentives do make a difference. The impact of tax incentives to support data centers is documented in the case of Central Washington State. “Data centers are the most recent addition to the industrial diversification of Central Washington. These centers began to take off around 2006, with several years of growth. That growth was accelerated by passage in 2010 of a state sales tax exemption for the hardware used in data centers. That incentive expired in 2011, shifting data center construction to other states that also have competitively priced land and power. The tax exemption was restored in 2012, returning Washington’s competitiveness for data center location.” 13
In Summary
The data center market is growing globally and in North America as we continue the transition to an information driven economy. While not labor-intensive, data centers have been shown to have considerable economic and fiscal benefits for localities and regions. Additionally, data centers help support additional technology and information intensive business that further add to employment. Many factors drive location and expansion decisions most notably energy, security, and IT infrastructure. Incentives are often used to help offset costs associated with these factors and are typically targeted as tax credits, rebates, or exemptions on personal property (equipment), and energy cost reduction.
Research assistance for this article was provided by Tilson, a global telecom and information technology management company, www.tilsontech.com.
[1] Data center infrastructure market will be worth $152 billion by 2016, Canalys, Wednesday, 11 July 2012 –
http://www.canalys.com/newsroom/data-center-infrastructure-market-will-be-worth-152-billion-2016
[2] Ibid
[3] 15% Growth Forecast For North America Colocation Market 2014, Government and financial services fuel outsourcing growth, Data Center Dynamics, 13 January 2014, http://www.datacenterdynamics.com/focus/archive/2014/01/15-growth-forecast-north-america-colocation-market-2014-0;
referencing report released by DCD Intelligence, http://www.dcd-intelligence.com/
[4] Data center Market Report, Q2 2013, National Data Center Companies Put Down Stakes in Minneapolis & St. Paul, Colliers International, ,
[5] N. America Campos Survey Results, Digital Reality, January, 2013,
http://content.digitalrealty.com/sfc/servlet.shepherd/version/download/06880000000k573
[6] Why data centers have a big impact on the economy, by Joe Weinman, Telx OCT. 27, 2012, http://gigaom.com/2012/10/27/why-data-centers-have-a-big-impact-on-the-economy/
[7] Data centers boom in Loudoun County, but jobs aren’t following, Jonathan O’Connell, Capital Business, January 17, 2014, http://www.washingtonpost.com/business/capitalbusiness/data-centers-boom-in-loudoun-county-but-jobs-arent-following/2014/01/17/b4a704c8-7f0e-11e3-93c1-0e888170b723_story.html
[8] Extracted by Camoin Associates for Economic Modeling Specialists Inc. http://www.economicmodeling.com/
[9] Data centers boom in Loudoun County, but jobs aren’t following, Jonathan O’Connell, Capital Business, January 17, 2014, http://www.washingtonpost.com/business/capitalbusiness/data-centers-boom-in-loudoun-county-but-jobs-arent-following/2014/01/17/b4a704c8-7f0e-11e3-93c1-0e888170b723_story.html
[10] Keys to Attracting Data Centers, Biggins Lacy Shapiro & Company, LLC., http://www.blsstrategies.com/Page.asp?id=287
[11] Targeted Cluster Analysis and Strategy, Camoin Associates, prepared for Loudoun County Virginia, November 2012.
[12] N. America Campos Survey Results, Digital Reality, January, 2013,
http://content.digitalrealty.com/sfc/servlet.shepherd/version/download/06880000000k573
[13] Economic Impact of Data Centers on Central Washington, Washington Research Council, September 2013, http://researchcouncil.files.wordpress.com/2013/08/datacenterssept2013.pdf
