The data center boom in the Southwest is drawing real estate developers eager to capitalize on surging demand. But navigating the market’s nuances and pitfalls — from securing power and water to overcoming land use challenges — isn’t easy, especially for new entrants.

“Nearly every large end user of data centers has planted their flag in Phoenix,” says Chad Riddle, civil and site development department manager with Colliers Engineering & Design. “You've got your Facebooks, Googles and Microsofts of the world — all the hyperscalers. They saw the opportunity and they put down their flags here.”

The Southwest continues to attract new players, said Riddle, who addressed the challenges they face when he spoke at Bisnow’s Southwest Data Center Investment Conference & Expo in Scottsdale, Arizona. Bisnow spoke with him about what developers need to know as they weigh the pros and cons of various potential data center sites and what hurdles they are likely to encounter.

Bisnow: What is your 30,000-foot view on data center development in the Southwest?

Riddle: Data centers used to be smaller. Now developers are focusing on larger plots of land to build 400- to 500-acre mega-campuses of up to 300 megawatts.

The data centers I’m seeing now are 50-50 between single tenant and multiple tenants. Some developers are focusing on built-to-suit projects while others are creating facilities for a variety of tenants.

Bisnow: How else is the market changing? 

Riddle: Smaller players are dipping their toes in. You’re seeing new entrants — for instance, investors whose experience has been in shopping centers — that are now expanding into data center development. These new entrants tend to start out with developments that are on a smaller scale.

Bisnow: What advice can you share for people entering this space?

Riddle: Water is a tried-and-true method for cooling down the necessary components that make up a data center, such as servers, processors, power supplies, etc. However, the southwest’s desert climate means water availability is limited.

Those developing here need to make sure, very early in the development process, that the local jurisdiction has the availability and capacity to the project site. Otherwise, the building could sit collecting cobwebs while local authorities figure things out or an end user with less water demand is identified.

In contrast to other data center emerging markets like Georgia, the landscape here is fairly flat, so topography is less of an issue and environmental permitting concerns tend to be fairly minimal.

Bisnow: Is access to water and power a hurdle to data center development in the Southwest?

Riddle: Technology keeps getting smaller and more efficient, and you can do more with less, in terms of both water and power. Yes, it’s a challenge and it’s not for lack of the power companies wanting to provide it.

Bisnow: What other aspects of site selection should data center developers be aware of? 

Riddle: Reading a given municipality's land use code can be illuminating. Certain jurisdictions will create codes that specifically address data center construction, or they’ll create an overlay district. This tells investors, “We’re open for business, we’ve thought about this and prepared for it.”

On the other end of the spectrum, there are municipalities that don’t address this kind of land use and don't acknowledge it in their legal code at all. Then you have to work with municipal government staff to amend the zoning ordinance and/or the Future Land Use Plan to provide language that allows it

Overall, forward-thinking municipal governments want to be organized in their approach. For instance, Phoenix is known for its housing stock. They don’t want data centers popping up next to big residential developments. The approach is to limit data centers to a specific area.

Bisnow: What other considerations can impact data site selection?

Riddle: There’s a sound component. Active generator yards and cooling equipment are not silent, and wind can carry the sound to a neighboring residential development. Knowing how to locate those components to minimize the negative impact is critical.

Bisnow: What does Colliers Engineering & Design bring to the table for its data center clients?

Riddle: We work with our clients during the site selection and due diligence process. Generally, this consists of survey, geotechnical, environmental, civil, architectural and traffic disciplines. During the due diligence period, we are able to educate our clients on easements and encroachments that may affect site layout, the soil makeup, whether there are any environmental concerns, conceptual design development, required entitlements and whether the surrounding road system can handle the increased traffic trips.

Once our clients decide to move forward with full design and permitting, our architecture, civil and landscape architecture teams work to finalize the construction documents package and obtain the necessary permits to break ground. As construction kicks off, our civil team works to support the client through the construction phases to ensure proper installation of the sediment and erosion control devices and stormwater management facility.

Bisnow: What do you hope people learned from your panel at the Bisnow event?

Riddle: I’d like to ensure that folks who are embarking on these kinds of investments are armed with as much useful information as possible. Due diligence periods are pretty rigid, so it is critical to know upfront what the issues might be and what to ask about.

At the same time, I want investors to remember that many of these municipalities are still learning how to regulate land use for data centers. It’s truly a collaborative effort between the public and private sectors. Commissioners are elected officials and they want to do what’s right for their constituents. That process takes time.

This article was produced in collaboration between Colliers Engineering & Design and Studio B. Bisnow news staff was not involved in the production of this content. 

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.