For landowners, understanding the potential for your property to accommodate a data center can unlock significant opportunities for growth and income. With the digital landscape continuously expanding, the demand for data storage and processing capabilities is at an all-time high. However, not all parcels of land are suitable for such development. This resource will guide you through the key factors to consider when assessing whether your land qualifies for a data center, helping you make informed decisions about leveraging your property in this booming sector.
What is a Data Center?
A data center is a dedicated space—whether a room, building, or facility—designed to house IT infrastructure essential for developing, operating, and delivering applications and services. It also serves as a secure environment for storing and managing the data connected to these applications and services.
The demand for data center capacity has been growing exponentially for more than a decade, but the COVID-19 pandemic triggered a significant shift. Lockdowns during the pandemic led to a surge in web conferencing, video streaming, and online gaming, and this heightened demand has persisted even in the post-pandemic world. Additionally, the emergence of new applications utilizing machine learning and artificial intelligence is further intensifying this demand.
Data centers are the backbone of our digital landscape, and as this landscape expands at an unprecedented rate, so too does the demand for these facilities. From the moment we wake up, we rely on data centers for numerous facets of our daily lives. Whether it's accessing the news online, streaming music, using navigation apps, connecting with colleagues via video conferencing, or checking our latest health results on medical portals—all of these digital services and the data they generate and consume are processed and stored within data centers. This encompasses data and applications deemed "in the cloud," as the cloud itself is housed within these centers.
Land Qualifications for Data Centers
When considering the development of a data center, several critical factors come into play, with location being paramount. The site selected must not only provide adequate space for the facility, but also ensure proximity to essential resources such as reliable power sources and fiber optic connectivity. Beyond these logistical considerations, the political climate of the area can influence regulatory approvals and operational stability. Additionally, potential tax incentives can make certain locations more appealing for data center investments, offering financial advantages that support the long-term sustainability of such large-scale operations. Understanding these qualifications is essential for optimally positioning a data center in today’s competitive landscape.
Curious if your property could qualify for a data center lease? LandGate's free property reports provide value index scores that evaluate your property's suitability for a data center on a scale of 0-100:
Property Size
Smaller data centers can operate within buildings ranging from 5,000 to 10,000 square feet, but larger enterprise and hyperscale data centers significantly exceed this range and can be up to 300 acres. Today's standard 40+ megawatt data centers require at least 10 acres of land, although 40+ acres is considered ideal.
Location
As is true with any other type of real estate, the most important factor that determines whether or not a specific property is suitable for a data center is location. Factors that determine an ideal data center location include robust connectivity, large population, favorable tax laws, low-cost and high-reliability power, low risk of natural disaster, and direct access to renewable energy.
1) Proximity to Electrical Infrastructure
Data centers need power, and they need it fast. That being said, properties located near, or ideally adjacent to substations and transmission lines, are ideal for data centers. However, this is not a 'dealbreaker,' as a large data center development generally requires upgrades to the existing power grid and the construction of its own substation to supply energy. Data center developers may be willing to invest in the construction of a new substation to support new projects.
Data center sites must also have access to fiber optic infrastructure. Fiber optic infrastructure continues to improve, and is generally located in many places that are already heavily developed. However, access to fiber optic infrastructure is not a 'dealbreaker' either- if fiber is not available at a potential site, it can be simple and cost-effective process for a data center developer to bring fiber where it is needed, so long as there is available space in the public right-of-way to install the new fiber. Given this information, it's important to remember that a shorter path for the new fiber may have to pass through privately-owned neighboring parcels. To use this path, easements must be obtained from the owners, which can be a time-consuming process.
2) Zoning
An essential factor in determining the suitability of a property's location for a data center is its zoning ordinance. Many local land development codes lack clear guidance on data centers, which can hinder project progress. Often, these ordinances do not specifically mention data centers, causing such properties to be categorized under the less favorable "industrial" designation. However, properties can be rezoned, which is a process that typically takes 3 to 6 months.
3) Physical Characteristics
Data centers require flat spaces for constructing modern buildings. This means that properties on steep slopes or in densely wooded areas are not ideal candidates for data center development. The site itself must also have enough space to accommodate the data center's building footprint, as well as parking areas and necessary landscaping. Properties already have buildings on them are great for data centers because the data center developer may be able to leverage the existing infrastructure to house the data center materials. In fact, many of today’s data centers were made from former factories.
4) Environmental Concerns
Environmental concerns such as flood zones, wetlands, and endangered species habitats may pose significant challenges in developing a data center project on a particular parcel. These issues can be complex and must be addressed to ensure the safety of both the environment and the facility's operations.
Political Climate
The political climate of the region where a property is located can have a significant impact on data center development. Favorable tax laws, government incentives, and policies that promote renewable energy usage can make a property more appealing for data center development. State governments have long offered tax incentives to companies that establish or operate data centers, offering exemptions from sales and use taxes, real property taxes, and personal property taxes. These incentives can greatly lower the operating costs associated with running a data center. An example of this is Maryland's sales and use tax exemptions for data centers. Data center providers that construct new facilities or expand existing ones in Maryland, while also generating full-time employment, are eligible to waive sales and use tax on data center equipment.
Water Access
Water access is important for data centers to operate effectively. Water is used to cool the electric components of the servers and other computing equipment through a process called liquid cooling. NPR reports the average data center uses 300,000 gallons of water a day to keep cool, roughly equivalent to water use in 100,000 homes. Many data centers directly consume water on-site to remove the heat generated by the IT equipment.
Do Data Center Developers Lease or Buy Land?
Data center developers engage in both leasing and purchasing land for their facilities, although it is generally more common for them to invest in buying land. This preference for ownership allows developers to have greater control over their operations, zoning regulations, and potential for future expansion. However, the decision to lease or buy can vary depending on several factors, including the developers' available capital, risk appetite, and the specific needs of the project. For instance, developers with limited funds may opt for leasing to minimize upfront costs, while those seeking long-term stability and control are likely to invest in purchasing land outright. Ultimately, the choice reflects a strategic balance between financial considerations and operational goals.
Does My Land Qualify for a Data Center?
Data centers are vital to our modern digital landscape, and their demand will continue to increase in the coming years. Data center developers must carefully consider location-specific factors such as land qualifications before selecting a site for development. Factors such as proximity to electrical infrastructure, zoning regulations, physical characteristics of the land, environmental risks, and the political climate all play significant roles in determining the suitability of a property for data center development.
The best way to find out if any data center developers are interested in leasing or purchasing your land for a data center is to get as many eyes on your property as possible from as many data center developers as possible. Listing your property for lease for a data center on LandGate's marketplace is a great start! Many data center developers across the nation use LandGate's software to plan new projects and to find suitable sites for data center development. Listing is completely free, with no obligations to accept any offers. Get started today:
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