By Mark R. Smith, Contributing Writer
If you ask Tracey Hyatt Bosman, principal with Biggins Lacy Shapiro, in New York, what she sees occurring in the data center market, you’ll get a swift, succinct response.
“Growth,” said Hyatt Bosman. “There are no surprises there.”
True, data centers and the industry “are getting physically bigger, especially for the Metas and Googles of the world,” she said. “Driving the increase in demand are Artificial Intelligence, industrial automation and online shopping for consumer goods, food and even cars. We’re not on the same consumer usage curve we were on during COVID-19, but all of the signs are pointing forward for data centers.”
Hyatt Bosman offered a distinction between the drivers of today and those seen during the pandemic. “To be clear, generative AI is on a new curve of all its own and it’s anyone’s guess as to how that will develop, but all of the experts are saying to expect dramatic increases that will heighten demand for data centers.”
While citing Northern Virginia as arguably the leading market in the industry, she also cited other key locales. “Chicago is seeing tremendous growth, as are New Jersey, Austin, Dallas-Fort Worth and others.”
However, while the overall outlook is rosy, there are still challenges to address.
The biggest is competition for power. “Data centers are looking for low-cost energy – particularly renewable energy – and lots of it,” Hyatt Bosman said. “They’re looking for solutions of all kinds, including wind and solar, on-site and off-site, and the ability to buy renewable energy credits, especially in the deregulated states.”
Even when data center operators can find available capacity, “they’re frequently hamstrung by unusually long lead times on the interconnection permissions needed to connect into that power,” she said. Another issue is competition for land due to increased demand from other sectors, “notably from the industrial market, since the start of the pandemic in early 2020. That’s when online purchasing spiked and the need for warehouse space did, too.”
Hyatt Bosman said that has led some of the bigger players in the market to take an all-encompassing approach.
“It is spurring investors to lock down large tracts of land and large blocks of utility capacity, with the intent of developing data centers, typically for third-party users,” she said. “The footprints of these sites aren’t compatible with downtown metro environments but rather are located in the more industrial areas in the outer rings of the suburbs and even in more rural areas where more land is more easily available at a better price. However, the sites still need to be proximate to the country’s fiber backbone. You can’t just build a data center anywhere.”
In addition, the data center industry is struggling with the same problems other industries face, including access to construction materials, supply chain issues and finding adequate labor, “so site selectors,” said Hyatt Bosman, “have to deal with that pressure, too.”
As Bosman Hyatt pointed out, this industry is about infrastructure. “No question about it,” said Bruce Curling, chief commercial officer of BitZero, of London, England/Fargo, ND, who recalled the “early days of ‘computer rooms’ with ‘primitive infrastructures.”’
They performed simple tasks, “like data storage or basic computing,” said Curling. Even then, “most beneficiaries of this service were awed by its efficiency” and how “the data seemed to come from the heavens, hence the expansive use of the word ‘Cloud.’”
Curling’s focus today is the debate of compute data centers vs. crypto mining data centers.
“Both look similar to the uninitiated, but the camps are actually quite different, with each side viewing the other with a certain amount of disdain,” he said. “The compute team sees ‘shoddy products’; the crypto miners see people ‘who spend too much money, can’t think creatively and build anemic products.’”
As with many debates, “neither side is 100 percent correct,” said Curling. “While the separation between miners and compute was necessary in the beginning due to disparate requirements, the two camps are beginning to receive similar requirements and just are about to be brought together by an unforeseen factor.”
And that factor is? “AI. AI is doing a fantastic job of bringing together two previously incompatible camps,” he said.
With that observation, Curling also highlighted the topic of cooling. “While crypto miners have employed water-cooled configurations like rear-door heat exchangers for years,” he said, “compute data center operators were reluctant to adopt water-based cooling on a broad level.” It was viewed in the compute world “as expensive and risky, not to mention unnecessary, considering that the tried-and-true method involving Computer Room Air Conditioning units worked just fine for racks with a faceplate value less than 20kW.”
But with AI, that’s changing.
“Compute racks that were once limited to the mid-teens in terms of faceplate value are now weighing in at 70kW,” he said. “The previous compute standard of operating racks at 45 percent is slowly being replaced with a higher predictability and thus a much higher percentage.”
The topic of building data centers in outlying areas is not lost on Betsey Hale, CEO of Cheyenne LEADS, of Wyoming. Hale understands that infrastructure, connection and power are key in the site selection mix.
“Cheyenne has become a hot spot for data centers for several reasons, including a more reasonable cost of living, available incentives, cooler weather, access to power and availability of land,” she said. “The right people are getting our message, as Cheyenne has about eight data center buildings in operation, with several more coming online in the next five years.”
A key example was set by Microsoft. “Microsoft has invested heavily in our area with three facilities,” said Hale, “as well as several expansions and recently purchased more land for another facility.”
But it’s another project by a data center company, Project Cosmo, that’s looming large these days on Cheyenne’s horizon. It recently purchased 900 acres to build an 800,000-square-foot facility and plans and begin construction by this spring.
This is big stuff within a business culture that’s been built on “energy, including oil, coal and natural gas. We also have significant investment in solar, wind, hydrogen, carbon capture and nuclear power,” said Hale. “A key element of Project Cosmo is that all of its data centers will need to run on renewable energy. By the time its first building is complete, we should have ample access” the market’s needs.”
Hale said that the planning of Project Cosmo was the result of “a state incentive package of up to $10.75 million specifically created for data centers in Wyoming. These incentives have continued to be a focus for data centers in the area and [offer] a good return on investment for the Wyoming taxpayers.”
But data center site selection is based on more than incentives, as climate is an important consideration, for instance. “With the cooler weather found in Wyoming, the cost of cooling in Cheyenne is much lower,” she said, “which, in turn, lowers energy consumption and costs.”
Then comes the matter of workforce needs. “For a state with a population of 575,000, an industry that doesn’t have excessive workforce requirements just makes sense,” Hale said, noting that Cheyenne is located just 90 miles north of Denver and has a labor shed of 183,000 offering additional skilled workforce.
Hale estimated that “Data centers in Cheyenne generally employ about 75 people per center” and stressed that the community still needs to work to meet the expanding needs. Microsoft is doing just that with Laramie County Community College “to build a workforce that can access its high-paying jobs,” in various industries, she said.
And anyone looking to move there needs to know that Wyoming “doesn’t collect corporate or personal income tax, so employees get a raise simply by moving here,” Hale said, “and we’re seeing that migration.”
Back east, Victor Hoskins, president and CEO of the Fairfax County Economic Development Authority, which is in Tysons, Va., but is identified as part of the vast Washington, D.C., metroplex, has had a front-row seat to observe the industry success and vast potential.
Hoskins pointed to figures from IndustryARC that cited the market potential in the data center market that support the growth: $418 billion by 2030, with an annual growth rate of ten percent; then the market potential of related industries, with AI standing at a whopping $15 trillion by 2030 (according to PricewaterhouseCoopers), with Quantum Computing at $106 billion by 2040 (according to McKinsey & Company).
“Those economic impact figures tell the story,” he said. “Today, the boost is about trial and error, with AI pushing the market as people become more comfortable with it.”
Also important is the federal government’s approach to harnessing AI. “It’s putting out guardrails to make it better, with legislators working to keep AI under control domestically and worldwide,” Hoskins said.
As for the jobs impact of the overall industry, he cited the Data Center Coalition’s recent study that revealed that 86,000 jobs were generated in 2021 (with an indirect impact of 4.1 jobs generated by one data center job), up from 65,000 in 2017.
So Hoskins feels nothing but confident while noting that most of Northern Virginia’s data centers are in Loudoun County, where they’re housed within roughly 165 buildings; and in Prince William and Fairfax Counties where there are about 42 and 29 centers, respectively, in Northern Virginia’s famed “Power Center Alley.”
“Northern Virginia is the epicenter,” he said, while discussing the huge need for power generation for that market. “The last numbers I saw were that we’re using more than 3,400 megawatts to power all of the data centers in our nine-jurisdiction region, which is three times larger than Singapore and almost six times as large as Silicon Valley.”
Like Cheyenne and other sites around the country, including the Hoffman Estates reinvention of a former corporate campus near Chicago and the planned Quantum Frederick campus that’s under development in Western Maryland (just across the Potomac River from Loudoun County) on the former Alcoa Eastalco Works smelting plant site, there is more big news in Northern Virginia.
That’s the recent approval of the PW Digital Gateway by QTS and Compass Datacenters by the Prince William County Board of Supervisors. The project would be among the biggest data center hubs in the world and encompass 2,100 acres and also include services, parks, etc., for the workers.
As is the case with virtually any project of that magnitude, “There is some controversy,” Hoskins said. “However, if this is done the right way, with proper location, design and input from the community, it won’t be perfect but it could happen.”
The bottom line, again, is that data centers provide a large revenue source to a jurisdiction. “Looking at the potential tax revenue impacts, we are seeing some individual projects that are estimated to bring in more than $6 million in tax revenue [to the county] annually.”
“Data centers aren’t about job generation,” he said. “They’re about economic impact.”
That depth, expanse and ongoing potential of the industry is still front-of-mind for Buddy Rizer, executive director of Loudoun Virginia Economic Development, who joined the organization 17 years ago ― just as the boom started and helped spur Loudoun “to become the fastest growing county in the U.S. for many years,” he said.
Per Hoskins’ comment concerning tax revenue, when Rizer arrived, Loudoun’s tax base was in serious need of a boost. “Our homeowner tax rate had reached $1.28, we were laying people off and business development was stagnant,” he said. “However, by establishing Loudoun as a key address for data centers, we’ve been able to lower our tax rate by nearly 42 cents.”
Part of the reason that happened is that Northern Virginia was established as a tech haven during the dot.com boom. “AOL was based in our area,” he said, “so we had access to a great fiber network and, at the time, plenty of available land.”
That’s what made Loudoun one of the biggest data center enclaves in the U.S., with what Rizer confirmed as approximately 165 buildings (with varying amounts of data operations) encompassing approximately 31 million square feet; five million more are in the pipeline in what is now a three-gigawatt market.
And that has “led to creating a more balanced economy,” said Rizer, “and placing more emphasis on accommodating current businesses and diversifying what we have to offer.”
As for the power issue, “We never had one until last July, but it hit all at once when Dominion Energy had to pause because the infrastructure was getting tapped out due to industry growth,” said Rizer, noting that access to adequate power lines “is another issue that’s being addressed.”
Those factors, interestingly, may mean less emphasis on the data center market as it matures.
“We still have thousands of acres available for development,” he said, “but we’re approaching the end of the growth curve. What we’re focusing on now is better design for the centers. We want them to meld more seamlessly into the overall community.”
Data centers “are big, utilitarian buildings. They look better than they did 10 years ago and you can argue that buildings in industrial parks are similar in appearance, but people forget that this is a relatively new industry,” said Rizer. “It’s still adapting and design is an important issue. Many data center developers are working to create a better dynamic.”
Bio: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.