Industrial Developers 'Licking Our Chops' For Northern Virginia Land

While data centers may be the golden child of Northern Virginia, the asset class is increasingly spurring interest in a different type of development.

The industrial real estate needed to support data centers has become a growing development opportunity, and one with less community opposition, owners and developers said Tuesday at Bisnow’s Mid-Atlantic Industrial Summit event. 

“The tail of industrial demand that follows the data centers is real,” Matan Managing Director of Acquisitions Jamie Minkler said onstage at The Hotel at the University of Maryland.

Peterson Cos. Managing Director of Development Adam Cook said that industrial projects they're seeing in the area are for data center support tenants

“The demand for folks that service data center — electrical companies, things of that nature …  there's been a dramatic uptake and interest in the marketplace from those firms,” he said. “Very specifically focused on serving the growth of Northern Virginia down the 95 Corridor.” 

Data center developers are increasingly fighting battles in the public arena, with opposition coming from both sides of the political spectrum and facing challenges in the courts. Northern Virginia data center hotbed Loudoun County in April eliminated by-right data center zoning, and in neighboring Prince William County, a judge last month threw out the zoning approval for a 2,100-acre data center project. 

But industrial development poses a more certain path to execution with less community pushback. 

“One thing I would say that is very exciting and has developers like me for industrial licking our chops a little bit is that in Northern Virginia, the anti-data center push is like, ‘Oh wait, industrial is great — let’s do that again,’” Lovett Industrial Market Leader Ben Swift said. 

Northern Virginia's colocation data center market is the largest in the country with 5.6 gigawatts of capacity, more than double the second-largest market, according to Avison Young. And down the I-95 corridor, Richmond has become the fastest-growing market in the country with 720 megawatts of inventory increases this year. 

“The idea of industrial that can service data centers is a really interesting thesis that we would like to look at a little bit closely,” Rockefeller Group Director Orlando Gutierrez said.

Industrial doesn’t capture the high level of rents that data centers get — but they do offer a greater level of certainty.

“It's okay for industrial land in Northern Virginia to just be industrial,” Minkler said. “It’s okay to just have a 200K SF industrial project in Stafford County, because it's going to lease to an HVAC contractor.”

Meanwhile, with data centers becoming more difficult to develop, landowners are increasingly settling for land values in the corridor that are more in line with industrial development, Minkler said. And Matan is taking advantage of the dynamic.

“That's where we’ve been opportunistic on the land acquisition side in counties like Stafford because the other developers who are only data center or bust have gone away. And as they've gone away, landowners, expectations on pricing have come back to, ‘You know what, it's just a really good industrial site,’” he said. 

Industrial leasing to data center-servicing companies doesn’t come without its own hurdles. The growth of the data servicing sector does rely on the growth of the data center market itself. 

“And as we see challenges with power being available increasing, as we see the organization of community sentiment against data centers, that threatens the growth patterns of those ancillary industries as well, Cook said.