U.S. data centers hit their lowest vacancy rate on record at the end of 2024, dropping to 2.6%. About 6.5 gigawatts is estimated to be under construction, with nearly 75% of this space already leased ahead of delivery. This is more than double the construction volume of the previous year, showing that there is continuing demand for digital infrastructure.

But with strong demand comes the need for more power — something that remains one of the industry’s biggest challenges, even for its crown jewel [region], Northern Virginia.

Sixty data centers in Northern Virginia dropped off the power grid simultaneously last July due to power grid malfunctions. While major impacts were avoided, Dominion Energy reported in February that it has 40 GW of data center power capacity under contract — up almost 90% since last summer.

“With such a big influx in demand, power delivery is a very prominent issue,” said James Grice, chair of data centers and digital infrastructure at Akerman, a full-service national law firm. “The way we used to deal with primary power sources is no longer the case anymore. There's a whole new level of innovation that's happening right now as it relates to not just power, but how we handle it.”

Grice will be moderating the Data Center Supply Chain, Capacity Planning and Procurement panel at Bisnow’s Data Center Investment Conference and Expo: National on May 20 to May 22. Click here to register.

Bisnow spoke to Grice to learn more about trends he’s seeing in Northern Virginia's data center market, how increased demand will impact power availability and how his firm is helping clients get their deals to pencil.

Bisnow: What data center trends are you seeing in Northern Virginia?

Grice: Northern Virginia is the biggest market in the nation, so we're seeing things happen here before they start to happen elsewhere. It's a very popular market for a number of site selection criteria reasons, even if power constraints remain a concern.

The industry is evolving and maturing, so the process of obtaining land use approval and necessary permitting is becoming a little more challenging. Data centers are no longer viewed as an innocuous land use with no impacts on the neighbors. The industry is sensitive to these concerns and they want to be welcomed into these communities. More effort than ever before is being made to be a good neighbor.

Because of these factors, the market’s geographic circumference is widening. The Northern Virginia market is now becoming inclusive of Southern Maryland, Richmond and other parts of Virginia that really were not considered Tier One locations before. This trend of expanding the markets’ reach is happening across the whole country — often to the benefit of communities that need an economic boost.

Bisnow: What do you think are some of the hot topics that you'll moderate at this event? 

Grice: It’s all about power. Demand continues to grow almost exponentially with no signs of slowing. We're going to talk about what that means and how it will be met. The way we used to deal with power delivery is very different than now.

The power business has a process called queue priority to establish an interconnection, so you basically get in line for capacity. But when you submit an interconnection application for 1,000 megawatts at one location with a five- to seven-year ramp, there are very few sites and utilities that can accommodate that request. As a result of this scale, how you pursue grid power interconnection upgrades and buy your power is changing rapidly.

Another issue that affects the current data center market is how design is changing. Best practice design was always 7 kilowatts to 10 kilowatts per rack using blade servers and other types of more traditional servers which utilized CPU processors. With densities based on that configuration, operators could use air cooling and the footprint always looked the same or similar. All of a sudden, power densities went crazy. With higher densities, liquid cooling is needed.

Bisnow: Given the increased demand for capacity and power constraints, how is Akerman advising data center owners and operators in the planning phases of development?

Grice: We have a large number of projects that we're working on. Our role varies from assistance with power entitlement, the interconnection queue and application process, along with build out of the system improvements to accommodate the new power demand. Given the increased complexity, we're being asked to provide assistance at an earlier stage in the project life cycle. For instance, we just recently started getting asked to assist with filling out interconnection applications.

We're also providing assistance as it relates to substation upgrades and on-site primary power development. An on-site primary power project represents a standalone project of magnitude with its own challenges, critical timelines and material capital needs. Our firm is organized intentionally to address all the multidisciplinary needs of a project like this and others such as site development and acquisition, data center leasing, energy solutions, construction, finance and capital formation.

Bisnow: How is Akerman helping its clients pivot despite data center supply chain challenges, especially with the artificial intelligence boom and extended lead times? 

Grice: We can help them with the contractual relationships to ease some supply chain issues, but really when it comes down to it, the supply chain is based on the availability of goods. Legally we can't do anything to shorten the supply chain time lead if the equipment is not available. However, our data center tax team can help clients to manage and defer their tax burden until they can take delivery of the equipment.

If they have scale at an organizational level, one of the things we help with is creating what's called a reseller entity, allowing them to procure those items and then warehouse them tax-free as a wholesaler entity. We then structure a transaction whereby the affiliate that owns the equipment as a wholesaler then resells the equipment to its affiliate serving as the project company that will place the item in service.

This allows our client to avoid certain taxes to the extent the transfer is made on or after the date on which the affiliated project company has secured tax exemption available in various states across the U.S. applicable to data center equipment. Incidentally, our team is probably one of the leaders in data center exemption programs, so we can help to secure the exemption and also with ongoing compliance.

This article was produced in collaboration between Studio B and Akerman. 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.