Northern Virginia Is A 'Petri Dish' For The Crises Facing Data Centers — And For Their Solutions

Northern Virginia has been the canary in the coal mine for a series of mounting problems facing many major U.S. data center markets over the last two years. Industry leaders say the world’s most important data center hub is also becoming the crucible for new solutions. 

When unexpected power shortages slammed the brakes on new data center development in parts of Northern Virginia two years ago, it marked the beginning of a data center energy crisis that now impacts every major market.

Northern Virginia was the first region where grassroots opposition to data center development emerged as a significant political force that threatened the industry’s growth, a phenomenon that has since spread to other U.S. data center hubs. From labor shortages to air quality concerns, many of the hurdles that increasingly confront data center firms trying to bring new capacity to market have hit a crisis point first in Northern Virginia.

Yet Virginia’s strategic location and critical mass of data center capacity mean developers will do whatever it takes to continue building in the market. This has made the region the test case for how to address many of the industry’s mounting challenges, several data center executives said last month at Bisnow’s DICE East event at the Hyatt Regency Reston. 

They pointed to growing collaboration between data center providers, utilities, and state and local governments as a potential model for how to overcome the critical power scarcity, a problem that is only expected to worsen in the months ahead. 

“Northern Virginia has been the bellwether for our industry as a whole,” said Prologis Global Head of Data Centers Chris Curtis, who joined the firm in March from Compass Datacenters. “Now you have government and the utility providers and the industry experts all coming together to help proactively try to address these issues.”

While it has become a harbinger of approaching headwinds for the U.S. data center sector, Northern Virginia is largely a victim of its own success. The region is by far the world’s largest data center hub, accounting for roughly a third of all U.S. data center inventory and more capacity than the next six top markets combined, according to reports from TD Cowen and CBRE.

But the sheer size and density of the Northern Virginia market relative to other data center clusters means it has been the first to feel growing pains from an unprecedented building boom that has more than doubled U.S. data center inventory since 2019. 

In 2022, Virginia utility Dominion Energy sent shockwaves through the data center industry when it announced it wouldn't be able to deliver electricity as promised to several projects in the heart of Loudoun County’s Data Center Alley.

Dominion hadn't anticipated a dramatic increase in power consumption from existing data centers that had maxed out its transmission infrastructure. New development ground to a halt on the most important patch of digital infrastructure real estate. Projects slated to open that year were delayed until as late as 2026 while Dominion made urgent upgrades to transmission lines.

The surprise power constraints caught the data center industry off guard, but they were also a preview of what was to come across every major U.S. market. Wait times to procure energy in markets like Atlanta, Phoenix and Columbus, Ohio, range from five to seven years, according to TD Cowen, while industry leaders anticipate data centers will be starved for power in as little as two years. 

Developers in Northern Virginia also face an increasingly challenging political landscape, with a growing number of major data center projects delayed or derailed by opposition from local residents and elected officials.

This is a new phenomenon for the data center industry. As power and land constraints pushed new data centers into rural and residential communities, projects that once flew under the radar now provoke fierce backlash as residents balk at data centers replacing farms or rising near bedroom communities. 

Developers were unprepared for this shift, which saw data centers receive regular coverage in local papers and nightly news broadcasts and emerge as a wedge issue in local elections. These grassroots efforts nearly derailed the Prince William Digital Gateway, a massive development on more than 2,000 acres slated to become the largest data center corridor in the world. 

This, too, was a harbinger of things to come for other major markets. Data centers now face growing opposition in communities from Arizona and Oregon to Atlanta, where city council members introduced legislation in April that would ban such facilities in parts of the city. 

“Northern Virginia is a petri dish. It’s a good example of what you should, shouldn’t and can’t do,” said Lee Kestler, CEO of EdgeCore Digital Infrastructure.  “It’s this microcosm of the broader market, and the challenges that we face today are indicative of what's going to happen throughout the rest of the country.”

But Northern Virginia is also where the industry will figure out how to tackle the challenges threatening to stall the industry’s growth, Kestler said.

The market is unique in that much of the computing capacity data center tenants want to locate there can’t go anywhere else. Cloud providers and other major tenants need to deploy at least some of their computing infrastructure in Northern Virginia for their systems to perform as designed.

This means that even though Virginia has encountered development headaches before other markets, data center operators and end users can’t run from those problems. They are forced to try to solve them.

“It's an ecosystem that is almost impossible to duplicate anywhere else,” Prologis’ Curtis said. “There's always going to be that location-sensitive application for cloud that needs to be here, even with land and power constraints and entitlement issues.” 

While there is no magic bullet for solving the power and public relations challenges facing data center builders, executives at DICE East said the lessons learned first in Northern Virginia are already reshaping how developers approach getting new capacity to market.

Perhaps the most important lesson to emerge from Northern Virginia over the past two years is the importance of long-term collaboration between developers, utilities, and local and state governments to overcome growing power scarcity and other infrastructure problems, they said. 

Utilities working directly with developers isn't a new phenomenon. In fact, many of the largest campuses have been spearheaded by utilities approaching major cloud providers with land and large blocks of power. Data center operators also routinely partner with utilities to help finance new generation projects, particularly renewables like wind and solar farms. 

But this collaboration can have limits. Dominion Energy has a long history of working hand in hand with the data center industry and a reputation as the gold standard in understanding digital infrastructure and responsiveness to the needs of developers. Yet Dominion was still blindsided in 2022 by the trends that caused data center power consumption to spike. This communications failure had significant financial consequences for data center firms. 

In the wake of those surprise power shortages, state officials began taking a more active role in managing the flow of information and coordinating between the data center industry and utilities, as well as other critical stakeholders like fiber providers, Curtis said. This kind of engagement and subject matter expertise by government officials at the state or local level has helped ensure that utilities and developers can make decisions that allow for sustainable growth. 

“When there was that little bit of a hiccup a few years ago, Dominion and the governor's office all reached out to industry experts and created this small task force to get our perspective and get the smartest people in the same room to solve these issues proactively,” Curtis said. “There’s so many elements that it takes to make these projects happen, from the power companies to the fiber to the economic incentives. It’s critically important to have government involvement.”

Virginia Gov. Glenn Youngkin's administration has also taken more direct steps to facilitate data center build-out and lower costs for developers. The Virginia Economic Development Partnership launched a program to identify sites throughout the commonwealth that might make sense for data centers, including state-owned land. At the same time, the administration also began offering grants to counties for infrastructure improvements to attract data center development to new parts of the state. 

Still, not every county wants to attract data center development. While some counties are using state funding to try to attract data centers and the tax revenue they bring with them, other communities remain ground zero for increasingly organized opposition to the industry’s expanding footprint. 

In some development hot spots like Prince William County, Fauquier County and even Loudoun County, residents have elected lawmakers who campaigned on limiting the construction of new data centers, creating much more uncertainty for developers pursuing entitlements. 

But as local resistance jeopardizes major projects, the industry’s largest players have begun changing their approaches to the communities where they hope to build. Developers are starting to treat proposed projects like political campaigns, devoting resources to engaging local stakeholders and tailoring messaging around projects to build support and mitigate potential opposition. 

“One of the key lessons is community engagement,” said Laurance Lewis, chief commercial officer at Avaio Digital Partners. “It's important to learn the lessons from what’s occurred and apply them going forward.”

This kind of proactive community engagement effort is a routine element of large developments in other sectors of commercial real estate, but it hasn't been part of the development playbook in the data center industry until recently. 

The approach is now being applied in other markets. EdgeCore hired Bill Jabjiniak, the former head of economic development in Mesa, Arizona, as its head of community outreach ahead of a major project in the city.  

And while this strategic shift is in its early days, industry observers in Virginia say they are already seeing it bear fruit. 

“I've seen some great success recently in a number of counties where there’s been very good early engagement, and the level of support has changed in a really good way,” said Robert Ward, the former CEO at Skanska who now serves as the Youngkin administration’s chief transformation officer. “The playbook for the last 10 years can't be the same playbook for the next 10 if the industry’s going to keep growing.”