The world is in the middle of a data center explosion as access to digital information becomes increasingly essential for every business and industry. As a result, thousands of data centers are being constructed every year to keep up with demand. Companies factor in many considerations when it comes to building these facilities, from construction costs to capacity to environmental concerns. One particularly important consideration often overlooked is where the data centers should be built, because this can affect how successful a project will be in the long term.
Most of the conversation around data centers is about how they will be built to meet current and future customer demand, while optimizing operational costs and power usage effectiveness (PUE). These are critically important considerations, but factors such as energy costs, local regulations, and proximity to users also need to be part of the conversation when it comes to data capacity planning. And they must be brought to the forefront long before the first shovel goes in the ground.
Let’s start by looking at the scope of the global data center construction industry, which is at an all-time high and shows no signs of slowing down. Humans create 2.5 quintillion bytes of data every day. When you consider how many Snapchat images people share, how many emails we send, and how long we spend on Teams and Zoom calls every day, it’s not hard to see why. Every single byte of this data needs to go through one or more data centers to seamlessly transmit information between individuals, corporations, and government agencies. It’s no surprise the total value of large-scale data center projects has passed the $300 billion threshold. More than a third of these are being planned or built in the Americas — including $99 billion worth of projects in North America alone.
One of the biggest factors to this rapid growth is the continuing dominance of cloud computing, which requires information to be stored off-premises rather than on companies’ private servers. 2021 was a record year for cloud growth, with 2022 and 2023 seeing a huge demand from hyperscale operators specialising in cloud computing and social media, where almost half the facilities built were leased before they were even completed.
In its H1 2023 report, CBRE reported that data center usage grew immensely, revolutionizing network performance requirements for new tools such as generative AI and predictive analytics. Power availability and capacity remain major issues. In particular, the search for power and volume has set limits on facility size even as rising prices for materials, costs, and labor keep organizations from building more capacity than they need.
There were more than 2,700 large data centers operating in the US in 2022, far outpacing any other country. Germany is second on the list with fewer than 500 in operation today. These facilities tend to be clustered in certain parts of the country. For example, the state of Virginia is home to projects that account for about 19 percent of the entire United States data pipeline value. By understanding why companies tend to choose similar locations for their data centers, we can glean critical insight into how these decisions factor into the planning process.
Site selection is increasingly challenging as cloud operators seek larger sites while balancing an ever-growing and evolving list of considerations: availability and price of sites, climate concerns, resource constraints for labor, power, fiber and water, and more public interest in the local impact of data center infrastructure. As we see more climate-based disasters, we will also begin to see how once-ideal data center locations may now be vulnerable to drought, significant storms, and other weather events which increase risks and redefine the historical boundaries of flood zones. These concerns are reflected in a recent Uptime Institute survey of data center users on climate risk: “One in ten data center operators now sees a dramatic increase in the risk to their facilities — a figure that suggests many hundreds of billions of dollars of data-center assets are currently believed to be at risk by those who are managing them. Insurers, investors, and customers are taking note.”
There are myriad factors that go into selecting where to build a data center, but there are four key considerations that every organization needs to consider.
1. Proximity to Customer Markets: Currently, most new demand is coming in the form of hyperscale and colocation facilities. Colocation data centers are extremely popular with small and medium size businesses, who can effectively rent the space and equipment to meet both their demands and their operational budgets. They are also popular choices for the top five data center providers, who often rent space to supplement their own capacity.
With the surge of innovation happening right now driven by AI, blockchain and crypto, 5G data, and other foundational technologies, there are countless businesses for whom colocation data centers are extremely appealing. Edge DCs are also becoming increasingly popular as they are smaller facilities, which allows them to be located closer to city centers and therefore closer to the populations they serve.
Data latency – the time it takes to transfer data between locations – also impacts the proximity of data centers to markets. As IoT, gaming, and smart technologies take off in private homes, edge DCs allow for reliability, speed, and connectivity close to where the users are located. The demand for edge is expected to triple by 2024.
2. Environment and Sustainability: Sustainability considerations such as impact on local water supplies, clients and company sustainability goals, and climate change are impacting both the construction and operational ends of data center projects. Some operators are seeking out larger campuses with more acreage, to support climate-linked objectives. Free air and free water cooling systems (where naturally occurring systems help instruments cool off) are also becoming preferrable to electricity powered cooling techniques.
Speaking about its campus in Holland, Microsoft’s Corporate VP, Cloud Ops and Innovation, noted that it will “construct a lowland forested area around the data center as well as forested wetlands, which are highly saturated with water and vegetation suited for water filtration to naturally process storm water and runoff.”
This is an example of how innovation is going into Data Center design and of how companies are looking at ways to achieve ambitious sustainability targets. It is also a way of sourcing cheaper land away from the prime sites in saturated markets.
3. Energy Costs and Availability: As demand for renewable powered data centers continues to grow, it is expected that increased investment dovetailing both sectors will be seen. Yondr, for example, is exploring renewable energy generation projects to support its data center campuses, while also working with Britishvolt on energy storage options for facilities. EdgeConneX has announced the launch of Voltera, which is a nationwide network of power infrastructure for electric vehicles, targeting large-scale deployments and fleets to support the proliferation of EVs.
Labor, water and fiber costs and availability are also important factors. Labor especially is a finite resource and presents challenges to hyperscalers building simultaneously in congested locations.
Data center development may be limited in key markets in the coming years, with the demand for data centers in the United States projected to grow at only a 10 percent annual rate until 2030. The “bring your own power” approach is being employed to best manage available supplies of power and land. In Ireland, for example, the electricity regulator has tasked “data centers with bringing some solutions to the table,” particularly in areas facing power constraints. With the current landscape and challenges at play, microgrids are facilitating on-site generation and energy diversification by providing access to a varied range of energy sources — the utility grid, energy storage, generators, renewable sources — to allow operation independently of the grid during outages and times of shortage.
4. Local Regulations and Incentives: One of the biggest considerations that companies looking to build data centers need to make is how quickly they can cut through the red tape. After all, having to wait years for approval can derail even the most forward-thinking project. Thanks to local factors like legislation and public opinion that could hinder construction, it can be challenging to build new data centers in certain parts of the country.
One of the reasons why Northern Virginia has become such an attractive region for data centers is that local governments have made it easy to gain regulatory approval. Just getting permittable land may constitute enough of a business case for site selection. Likewise, local governments can offer tax incentives to attract data center construction, and the right combination of generous tax terms and reasonable regulations can be a major factor in determining location.
Data center providers also need to consider the market constraints of where they are building their assets. Many of the most popular locations, such as Northern Virginia, are in demand due to their ability to meet asset requirements for power, water, and land while providing connectivity to the Americas and Europe, the Middle East, and Africa. Coastal locations also have the advantage of connecting directly to subsea cables like the Amitié subsea cable linking the Americas to the rest of the world.
Colocation or wholesale is another option many providers consider when faced with new markets or challenges that prevent them from being able to deliver their own projects. Providers can take space within a data center facility built solely for the purpose of renting out data center space to other companies. When selecting a site for a data center, and the type of data center and delivery model, consider asking these questions to ensure the site will be able to manage demand.
Gary Devenney joined Linesight in 1995 and currently serves as director. He has more than 28 years of experience in the construction industry across a broad variety of sectors, including semiconductor, data centers, civil engineering, residential, commercial, industrial, and leisure, both in Ireland and internationally.
