Northern Virginia No Longer The Undisputed Data Center King
Northern Virginia no longer stands alone as the world's leading data center market, according to a new report.
After decades as the center of the digital infrastructure universe, Northern Virginia still has more data centers than anywhere else in the world. But for the first time, the region has company atop a major annual ranking of data center markets that weights total size against a range of desirability factors like fiber connectivity, taxes, and the price of land and power.
Portland, Oregon, scored just as highly as the industry’s traditional capital in the Cushman & Wakefield study, a fact the report’s authors attribute as much to the mounting challenges facing Loudoun County and its neighbors as to the wave of massive data centers flowering in the Pacific Northwest. The tied ranking represents the first time in Cushman & Wakefield's four editions of the report that Northern Virginia hasn't stood alone at the top.
This is just the latest evidence reflecting a growing consensus: With Northern Virginia facing shortages of power and land and an increasingly hostile political environment, the bulk of the industry’s growth may occur elsewhere. As new markets are emerging across the country, more operators and developers are coming to the conclusion that Northern Virginia just isn’t worth the trouble.
“They're seeking opportunities that are both more affordable and where they can scale more quickly,” said Jacob Albers, research manager at Cushman & Wakefield.
“You look at these secondary markets that have cheaper land and potentially cheaper power but also greater incentive packages and less political headwinds — it enables them, whether they're a hyperscaler or a colocation provider, to put their flag down and get 100 megawatts rather quickly at a price that makes the underwriting for the project make a lot of sense," Albers added.
Northern Virginia — and Loudoun County in particular — has been a global data center hub since the early days of the internet. Loudoun County’s government embraced the emerging data center sector as a central piece of its economic development strategy, implementing zoning and tax incentives meant to foster the industry’s growth, with rapid permitting and approval times made possible by a local government that understood developers’ needs.
The result was the world’s densest digital infrastructure cluster in Data Center Alley and a market that providers across every segment of the data center industry have been willing to pay increasingly high land costs to have a footprint in.
To be clear, data center operators haven't begun fleeing the region. The 2.5 gigawatts of data center capacity in use across Northern Virginia is more than three times that of any other U.S. market, according to Cushman & Wakefield, with a vacancy rate south of 1%. The region's 700 MW data center development pipeline is also the world’s largest.
But while Northern Virginia will likely remain the largest data center market for the foreseeable future, Cushman & Wakefield’s report indicates smaller markets like Portland present better opportunities for developers, operators and tenants to gain a foothold and expand.
“I think the most meaningful and interesting data center developments in 2023 will happen in secondary and tertiary markets,” Michael Rechtin, a partner and head of the data center practice at Seyfarth Shaw, told Bisnow earlier this month. “Northern Virginia will slow down as more companies are pivoting elsewhere and developers are building speculatively in these new markets because they are lower-cost and they know demand will come.”
Industry insiders say the primary factor driving this shift boils down to this: Northern Virginia is an increasingly difficult place to build data centers.
While a shrinking supply of developable land and subsequently skyrocketing land prices have been a growing concern in the market for years, it is an unexpected lack of power that has arguably played the largest role in driving developers to look elsewhere. In July, power provider Dominion Energy disclosed that it wouldn't be able to deliver the power it had promised to a number of pending data center projects in Loudoun County, the result of overwhelmed transmission infrastructure that the utility failed to plan for.
The surprise revelation created a de facto moratorium on new data centers in sections of Loudoun County that could last until 2026 and raised questions about future power availability across the broader region. Slamming the brakes on development in Loudoun created an immediate impact in data center markets across the country, driving down vacancy rates as providers and tenants scrambled to find alternative locations to deploy their servers, according to Cushman & Wakefield.
While Loudoun’s power problems have stoked developer interest in other areas of Northern Virginia, the industry’s growing footprint in the region is exacerbating another growing concern: a wave of public opposition to new data centers.
The political environment across Northern Virginia is becoming increasingly hostile to data center developers, with organized opposition groups successfully scuttling proposed projects in Fauquier, Fairfax and King George counties.
Arguably the most contentious fight has been over the so-called PW Digital Gateway, which would open up more than 2,000 acres of rural land in Prince William County to data centers. The project was approved despite vigorous opposition from some community groups, but now state lawmakers have joined the fray. Earlier this week, two Virginia legislators proposed separate bills that, if passed, would likely doom the project.
As development in Northern Virginia is becoming more difficult, a number of smaller markets are becoming more attractive to data center builders, operators and tenants.
In addition to Portland, other fast-growing U.S. data center markets in Cushman & Wakefield's global top 10 ranking include Phoenix and Atlanta. Other cities that didn't make the list but that Albers said he sees as emerging data center markets include Salt Lake City, Austin-San Antonio and Columbus, Ohio.
Operators are increasingly prioritizing markets with stable power costs and lots of renewable energy, areas where Northern Virginia scores poorly. Fiber connectivity has also improved dramatically in smaller markets over the past decade, opening up new land for development, while a growing number of local and state governments across the country are following in Loudoun County’s footsteps by offering a range of tax incentives and other developer-friendly enticements in the hopes of luring data centers and the tax revenue that comes with them.
Portland exemplifies the kind of location that data center developers are increasingly drawn to. The Portland suburb of Hillsboro has become a hub for hyperscalers attracted to its abundance of cheap land and renewable energy, along with low taxes and access to major trans-Pacific cables. QTS is reportedly planning a 250 MW campus near Portland on behalf of Meta, a project that will be powered entirely by renewable energy from nearby hydroelectric dams.
It is exactly this kind of project — simply not a possibility anywhere in Northern Virginia — that has the industry increasingly turning its eyes elsewhere.
“Portland’s rise is indicative of a number of smaller markets growing to be of key interest for the data center industry,” Albers said. “Going forward, expect other secondary markets to see substantial jumps in rankings.”