By Randolph Borron, Vice Chairman
When choosing a site or market for a new data center development, there are hundreds of factors to consider; and for each data center function in each company, these factors and their degree of importance differs. Typically, the most important considerations for site selection decisions are access to power and fiber, taxes, and access to large amounts of cheap power.
For Users and Providers that are developing data centers, key costs often be greatly influenced by incentives offered by the municipality, state or province, Federal Government, and the power authority; but such incentives are unique and can vary wildly region to region. These differentials often cause dramatic disparities on the bottom line and thereby; have significant impact on the site selection process.
Power is a significant portion of a data center’s operation cost. In the United States, data centers represent a full 2% of total energy consumption. Given the high levels of consumption, even small reductions on electricity rates can be significant enough to affect the site selection decision.
Incentive may come in many forms, such as:
- Sales tax, both state and local, on computer equipment or electrical or software infrastructure or physical plant
- Property tax deferral or reimbursement
- Capital investment incentives
- Employment incentives based on numbers or above average wage rates
- Some incentives apply in defined enterprise zones
- Electrical consumption rates
- Reduced land costs
- Assistance with delivery of electricity to the site
In active real estate markets, data centers are competing with a wide variety of other businesses, real estate investors, and developers that do not have the same due diligence requirements that are critical for their success. Thus, these competing buyers can move more quickly with less conditions.
This competitive environment for prime land and buildings is a challenge, adding an additional layer of investigation into the due diligence process. Incentives that are offered during the pre-negotiation phase of a site purchase add to the complexity of determining the Total Cost of Ownership, particularly when the incentives may come from several layers of government.
While some municipalities are less friendly to the idea of data centers, others understand the benefits and have not only added specific incentives but have also revised their existing ones to better qualify data center investment. Such municipalities have been very successful at attracting billions of dollars in new investment while creating thousands of new jobs, such as direct employment and indirect IT support employment, initial and continued construction jobs, and job growth in the market for local businesses utilizing the data center. What we’re also seeing are data center clusters popping up in prime markets that have attractive site selection incentives, Oregon and Washington being a great example of this new trend.
Data center site selection is very complex; it juggles hundreds of key factors that are critical to its success. The site selection process requires specific expertise in order to achieve the creative solutions that can potentially save millions of dollars in taxes and operating costs.
Incentives can be significant in the decision making process during site selection. Cushman & Wakefield works closely with its clients to understand their data center needs and objectives, and assists in the evaluation of acquisition cost, development costs and long term operating costs in order to ensure a successful outcome. Don’t let all these considerations cloud your judgement, let Cushman & Wakefield’s Data Center experts help navigate these decisions for you.
Randy Borron is a Vice Chairman at Cushman & Wakefield with 28 years of experience in data center and telecom switch site acquisition and lease negotiations, and more than 33 years of experience in commercial real estate. His data center expertise covers site selection, lease negotiation, portfolio strategy, real estate strategic planning, and account management.