Data centers, the large buildings that house more machines than people, are typically located close to high-tech hubs to provide companies with close-by storage support, such as in booming (and expensive) office markets including San Francisco, New York and Chicago.
However, theoretically, these centers can be located anywhere where there are strong power and data connections. Investors and owners who are building one-user “enterprise” centers are now combing the country for secondary markets where land is cheap and safe (meaning there are as few regularly occurring natural disasters as possible), and where the best development incentives and low power prices can be found.
These markets are out there for savvy investors, according to a new research study from commercial real estate services firm CBRE on cost-effective data center site selection in the United States. Careful selection of properties in markets where there are major tax incentives and low power and construction costs can result in more than $100 million in savings per project, according to the study.
“If an owner is thoughtful about a location and goes through thorough due diligence, instead of just placing a finger on a map, there’s a lot of money to be saved,” says Jessica Ostermick, director of research and analysis with CBRE.
She says that though there are a lot of variables to consider when building a data center, the study showed that by separating out per-kilowatt-hour cost and tax incentives, the differences between expensive and inexpensive markets emerge. The markets with the highest costs tend to be in high-demand locations: Silicon Valley, San Antonio, Texas, Boston, Chicago and Minneapolis. For the most part, these markets don’t need to offer developers strong incentives to attract new centers, and power can be pricey. The cost to build and operate an enterprise data center in these markets typically ranges from $276.6 million to $368.4 million, according to CBRE.
On the other hand, there are secondary markets that need new property types to bring in needed jobs and economic stimulus, with local legislatures more inclined to offer tax breaks and work out partnerships with utilities providers to make electricity cheap. Dan Peterson, a data center expert with real estate services firm Colliers International, says in some cases, a potential new project will even help push the government to act.
“Tax incentives and cost of power can drive site selection as much as network and geographic risk mitigation,” he says. “Look at Quincy, Washington and Des Moines, Iowa. Both were put on the map this way and then they extended incentives primarily to support companies already there that wanted to expand. New or expanding data centers will have temporary high-end construction employment, justify utility infrastructure improvements and create some high skill jobs that many secondary markets want in their community.”
Pat Lynch, managing director of data center solutions at CBRE, says those two cities are included in the top five inexpensive markets for data centers in the country. To find out where those markets are, click through our slideshow. Prices to build and operate data centers in these markets typically range from $227.5 million to $248.3 million, Lynch says. While non-monetary considerations, such as proximity to a company’s headquarters or other data centers, fiber density and environmental risk facts, can sway the ultimate decision, if it’s strictly about the savings, here are the top five inexpensive data center markets: