Why is Data Center Location Important? – Data Center Fundamentals

In Podcast 40, we continue our Data Center Fundamentals series and dive into the basics of data center location. Why is the location of a data center important? We go through at all the reasons data center professionals need to know about the location of a data center. Economics Data centers are exponentially more expensive than other types of real estate, and the economic considerations have ramifications on all data center projects. Power cost is one of the most important factors when choosing a data center location as it can constitute up to 20% of the total cost of colocation. The cost of power can vary widely from region to region. Areas like Quincy or Montreal are $0.02-0.03 per kilowatt-hour, while locations in the Northeast US can be up to $0.15-0.16/kWh. For larger colocation providers and hyperscale companies who are building entire campuses, land availability and cost needs to be accounted for. In markets like Dallas and Phoenix, there is virtually unlimited land in every direction. In markets like Northern California, Northern Virginia, or Chicago, natural barriers like bodies of water or heightened demand make land acquisition more difficult. The market’s climate can impact the cost as well. In cooler markets, you can use the cool air outside to cool servers instead of air conditioning units. This can help keep power consumption costs down. In warmer markets, summers can have higher power costs due to peaks in demand. Most states offer tax incentives tailored to data center development in order to attract end-users. Larger data center investments can be eligible for tax credits based on the total development investment or receive exemptions from sales tax on equipment. A market’s competitive landscape and demand profile also impact lease rates. Heavy competition and/or an oversupply in a market may lower the amount data center providers can charge. This is what we're seeing in the Dallas and Chicago data center markets right now. Conversely, a smaller number of operators or lower supply in a market can enable providers to charge a higher rate. Hazards A data center’s location can also be influenced by geographical hazards. Natural hazards like earthquakes or hurricanes are important to consider when performing a site evaluation. Markets like Phoenix and Chicago are relatively safe from natural hazards. New Orleans and Orlando are examples of markets that have historically deterred data center development. Even with natural hazards, some markets are so strategic that providers build there anyway. In order to do so, they may need to make a larger investment to beef up the building’s physical infrastructure. For example, Northern California, Los Angeles, and Seattle are areas of high seismic risk but are also three areas of substantial data center investment. To account for natural hazards, data centers can be designed to absorb earthquake vibrations or withstand winds of 150+ mph. Man-made hazards also have an influence on a data center’s location within a market. The proximity to railroads, highways, airports, and nuclear power plants are often considered when selecting a data center location.