A combination of tax incentives, access to clean power and proximity to end users is expected to drive heightened data center activity in the Pacific Northwest, the Midwest and in some Canadian markets in 2021.

After a banner year for data center investment, data center construction and leasing are likely to keep cranking at a fast clip next year. In a recent forecast, CBRE estimated that total data center activity will climb by 13.8% across primary U.S. markets, with 373.6 megawatts of development under construction.

Much of the total development will be concentrated in the largest data center markets, including Northern Virginia, Silicon Valley, Chicago and Dallas/Fort Worth. But as the market evolves, many providers are eyeing second-tier markets as the next frontier of growth.

 “The incremental improvements in latency that come from deploying content and workloads locally in these large population centers (as opposed to distant cloud data centers), coupled with the ability of full-sized data centers to better scale and maintain infrastructure, make this approach of building in Tier 2 markets even more beneficial,” JP Laqueur, senior vice president of marketing at DataBank, told Bisnow in an email.

For providers of cloud services and content, establishing data centers physically close to their end users means lower latency and a better experience. That will drive continued growth in Tier 2 cities, “or as some call them, the secondary NFL cities,” Laqueur added.

“The story of 2020 was large hyperscalers and cloud service providers taking a speed-to-market approach to keep up with the demand of end users,” said Ed Socia, director of research at CBRE's Data Center Solutions group.

“On top of that, you have things like 5G rolling out and edge computing," he said. "In baseball terms, we’re still in the first or second inning of those instances. But as we continue to see those technologies become more and more mainstream, we’re going to see more data center development in secondary and tertiary markets.”

Apart from proximity to end users, a combination of local policy and access to key resources will continue to play a major role in what second-tier cities draw the most data center activity.

As of last year, a majority of U.S. states had some form of incentive programs specifically targeting data centers, according to the Site Selection Group. Those programs typically include sales tax exemptions, or other municipal tax abatements, and can add up to millions of dollars in annual savings for a data center operator.

Sustainability has emerged as an important priority for data center firms, and that’s an advantage for markets with access to affordable hydroelectric power, including Montreal, Toronto, Portland and Central Washington. Advancements in data center technology, which allow for more power-dense facilities, could further drive demand for access to cheap, clean power for data center firms.

Those second-tier markets in the Pacific Northwest and Canada also boast strong connectivity and fiber access, all contributing to ideal conditions for data center developers. Hillsboro, outside of Portland, has more than 20 MW of data center capacity under construction. Montreal has nearly 60 MW, Toronto has 24 MW and Central Washington has more than 40 MW under construction.