bae urban economics
Data Center Market Study
Prepared for Prince William County, Virginia
October 20, 2021
1
Executive Summary
As part of a larger study being led by Stantec to review the potential expansion of Prince
William County’s Data Center Overlay Zone, BAE Urban Economics prepared a market study of
the data center industry. This report includes four components: 1) a data center emerging
trends review, 2) a best practices/competitive assessment of economic development
programs for data centers, 3) an economic impact analysis for a prototype data center, and 4)
a data center demand analysis for Northern Virginia and Prince William County. Key findings of
the report are summarized below.
Data Center Industry Emerging Trends
Key findings are as follows:
• The exponential increase in digital communications and services, and the
corresponding demand for storing, managing, and distributing large amounts of data
and information has led to substantial growth in the U.S. data center market.
• Data centers, which are centralized repositories of computer servers that provide
electronic services, are a key resource for digital communications and services.
• More data centers are being built to meet the rising amount of data that is created and
stored. The U.S. Data Center Market was valued at $8.4 billion in 2020, and is
projected to reach $13.91 billion by 2026.
1
• The increased demand worldwide for data centers applies to both enterprise data
center facilities owned and operated by the company they support (e.g., Amazon Web
Services (AWS), Microsoft, Google, etc.) as well colocation data centers that rent out
rack space to third parties for their servers or other network equipment.
• The COVID-19 pandemic has boosted the global data center market as it created
increased demand for internet-related services beginning with 2020 lockdown. The
pandemic also led to companies and governments migrating from locally hosted
applications and data to cloud services provided by data centers.
1
United States Data Center Market - Growth, Trends, COVID-19 Impact, and Forecasts (2021 - 2026). Retrieved from:
https://www.researchandmarkets.com/reports/5120080/united-states-data-center-market-
growth?utm_source=BW&utm_medium=PressRelease&utm_code=n662p8&utm_campaign=1532805+-
+United+States+Data+Center+Market+Growth%2c+Trends%2c+COVID-19+Impact%2c+and+Forecasts+Report+2021-
2026&utm_exec=chdo54prd
2
• The increased demand for data centers has led to large increases in the total inventory
of data centers in North America. In the second half of 2020, the total inventory of
data centers grew by 152.9 Megawatts (MW)
2
(5.9 percent) and 291.8 MW (11
percent) year-over-year.
3
• Northern Virginia has the largest data center market in the U.S. Data centers in
Northern Virginia make up 48 percent of the primary market inventory of data centers
in the U.S.
• Real estate researchers predict continued market strength for the Northern Virginia
data center market going forward. A large amount of pre-leasing in data centers under
construction is contributing to supply and demand figures in 2021 and beyond.
4
• Rental rates for data center space are relatively low in Northern Virginia versus other
markets, which helps to keep demand high in the market.
5
• Average power rates in Northern Virginia have consistently stayed at 5.2 cents per
KWh for the last five years, whish is lower than power rates in many other data center
locations in the U.S.
6
Since power makes up 40 percent of operating costs at a typical
data center, this is a competitive advantage for Northern Virginia.
7
• High demand for data centers in Northern Virginia is reflected in recent land sales for
properties where data centers are allowed. A dwindling land supply has led to record
price per acre land sale costs in the region; the seven most recent data center land
sales had price per acre costs ranging from $425,000 to $3,020,000.
8
• While the International Data Corporation (IDC) estimates the average age of a data
center at nine years old, the exponential growth in digital data, services, and
2
Growth in the data center real estate sector is measured in power, not square footage.
3
CBRE Research, “A Source of Stability: Digital Infrastructure in 2020, North American Data Center Report H2 2020.” Retrieved from
https://www.cbre.us/research-and-reports/North-American-Data-Center-Report-H2-2020
4
Ibid.
5
JLL, “2020 Year-End Data Center Outlook: A Review of the Industry’s latest trends and what to expect in 2021.” Retrieved from
https://www.us.jll.com/en/trends-and-insights/research/data-center-outlook
6
Ibid.
7
U.S Chamber of Commerce, “Data Centers, Jobs and Opportunities in Communities Nationwide.” (2017). Retrieved
from https://www.uschamber.com/report/data-centers-jobs-opportunities-communities-nationwide
8
Cushman & Wakefield, “Data Center Update Americas: United States and Canada.” (2021). Retrieved from
https://www.cushmanwakefield.com/en/insights/americas-data-center-update
3
communications is forcing data centers to modernize their platforms to support more
capacity, reliability, scalability, and faster processing speed. It is generally far more
cost effective to modernize the existing equipment in a data center than to relocate
and build a new center.
Best Practices/Competitive Assessment – Economic Development Programs
Key findings are as follows:
• Data centers prioritize six key factors when selecting new sites for development: fiber
connectivity, environment, access, access to electrical power, access to water, a
skilled workforce, and incentives. Of these, the most critical is access to high
bandwidth connectivity.
• The growth of the data center industry in Loudoun County beginning in the 1990s has
been driven primarily by the density of fiber networks. Loudoun County continues to be
the location of choice but land availability has become more limited.
• By proximity to Loudoun County, but also in its own right, Prince William County
provides companies and data center operators convenient access to the most
interconnected network in the world, with close access to inter-continental cables in
New Jersey and Virginia Beach.
• Land use and economic incentives can help attract data centers, even though network
connectivity is the most important factor for data centers when it comes to site
selection. The two main economic incentives that jurisdictions offer data centers are
reduced personal property tax rates, and reduced sales and use tax rates.
• Compared to the other Northern Virginia counties, Prince William County has the
lowest personal property tax for data centers, at $1.50 per $100 of assessed value for
eligible equipment (i.e., computer equipment, cooling equipment, etc.). Combined with
Virginia’s sales and use tax exemption for eligible purchases, this positions Prince
William County competitively versus Loudoun and Fairfax counties.
• In terms of zoning ordinances, Loudoun, Fairfax and Henrico counties in Virginia allow
by-right development of data centers in a range of commercial, office, and industrial
zones. Fairfax County imposes additional size and design regulations for data centers
in the denser nonresidential zones, while Henrico County permits by-right data center
development in all office, business, and industrial zones.
4
• The two factors that are becoming increasingly important for the site selection process
are the availability of land and the incentives/ease of development in places with
available land.
• Despite regional interest in attracting data center from other parts of Virginia and
certain locations in Maryland (i.e., Prince George’s County and Frederick County), data
center developers will continue to seek available land in Prince William County to
remain close to Loudoun County’s “Data Center Alley,” so the amount of data center
development will ultimately be determined by the availability of land.
Economic Impacts of Data Centers
BAE used IMPLAN, an economic modeling software package, to estimate the impacts of data
centers on the Prince William County economy. The analysis considers three types of impacts:
jobs, worker compensation, and total economic output generated by data centers in Prince
William County.
IMPLAN models the way income is spent and re-spent in other sectors in the economy,
generating waves of economic activity and job creation, sometimes referred to as the
“economic multiplier effect.” Once the economic events have been entered into the model,
IMPLAN reports the following types of impacts:
• Direct – Direct impacts refer to the set of producer or consumer expenditures. This is
the amount of spending available to flow through the local economy.
• Indirect – Indirect impacts are impacts of local industries buying goods and services
from other local industries.
• Induced – Induced impacts refer to an economy’s response to an initial change (direct
impact) that occurs through respending of income according to household spending
patterns.
To conduct the analysis, BAE reviewed other data center economic impact studies for
information on typical characteristics of data centers and developed a prototype data center.
This prototype is one data center building; many data center complexes in Northern Virginia
have two or three buildings similar to this prototype on their campuses. The building prototype
is 250,000 square feet, and had construction impacts of $1,100 per square foot for a total of
$275,000,000. It has 28 permanent jobs with 9,000 square feet per worker. Compensation
per worker, including benefits is $180,000 and total worker compensation is $5,040,000.
The economic impacts from this data center prototype as described above are:
• With construction costs estimated at $275 million over an assumed 12-month period,
would support almost 1,700 estimated direct jobs and an additional 407 indirect jobs
5
at other business supporting the construction. There are also another 301 jobs
resulting from worker expenditures.
• The indirect impacts in expenditures for construction amounts to $73 million, while the
induced impact is $44 million during the construction period.
• Once the data center building is operating, there would be an estimated 28 direct full-
time equivalent jobs. The demand for goods and services for the operation would
support an additional 133 indirect jobs, and the expenditures of worker households
would support 22 additional jobs.
• Project-related jobs (direct, indirect, and induced) would be equal to .09 percent of the
County’s total 2019 jobs. The wages of the permanent staff, which are relatively high,
are equivalent to a higher proportion of the Prince William County wage totals, 1.30
percent of the current County average.
Market Demand Analysis
BAE analyzed both the current supply and the likely demand for data centers in Northern
Virginia, specifically in Prince William County. According to Baxtel, a data center information
clearinghouse, there are 180 data center sites in Northern Virginia, primarily in three counties:
Fairfax, Loudoun, and Prince William.
9
Most of the data centers in Northern Virginia are
located in Loudoun County in an area known as “Data Center Alley” along the Dulles Greenway
(VA 267) which includes Ashburn, Sterling and Leesburg. Prince William County currently has
26 data centers, with seven another additional campuses under construction.
Through conversations with data center-focused real estate representatives, data center
industry representatives and collected real estate data, BAE makes the following observations
about the data center market in Prince William County:
1. Land prices for data center properties are rising to unprecedented heights. Land sales
for data center sites in Loudoun and Prince William counties between March and
August 2021 ranged from $425,000 - $3.02 million per acre.
2. The primary drivers for data center real estate site selection are availability of power
and access to fiber. Data center real estate specialists indicate access to reliable
power and access to fiber are the most important factors in data center site selection.
9
Baxtel, “Northern Virginia Data Center Market.” Retrieved from https://baxtel.com/data-center/northern-virginia
6
3. State economic incentives are important for attracting data centers, but not as
important as availability of power and access to fiber. The Commonwealth of Virginia
offers an exemption of retail sales and use tax for qualifying computer equipment
purchased by data centers that meet statutory investment and employment
requirements. According to data center real estate specialists, these incentives but do
not drive decisions.
4. Local personal property tax rates are a factor, but they are not likely to be a primary
consideration for data center site selection. Prince William County has the lowest
property tax rates among the Northern Virginia counties. The County recently elected to
raise the property on IT equipment with a phased increase through 2024. The impact
of this change is not yet known.
5. Other serious competitors to Northern Virginia for data center investments are
emerging. Other areas in the broader region, including Henrico County and other
jurisdictions in Virginia and Frederick County and Prince George’s County in Maryland
are working to attract data centers. Additionally, as of 2020, Maryland now exempts
sales and use tax of qualified personal property for data centers.
6. The demand for data centers, particularly in Northern Virginia, is extremely strong
according to data center specialists and industry representatives and will likely remain
so for many years. Experts say there is practically unlimited demand in Northern
Virginia for data centers. The high rate of growth in the sector will continue and be
abated only by the lack of land availability.
Introduction
BAE Urban Economics prepared a market study of the data center industry as part of a larger
study being led by Stantec on a proposal to expand Prince William County’s Data Center
Opportunity Zone Overlay District. Included below are the four components of this market
study: 1) a data center emerging trends review, 2) a best practices/competitive assessment of
economic development programs for data centers, 3) an economic impact analysis for a
prototype data center, and 4) a data center market demand analysis for Northern Virginia and
Prince William County.
Data Center Industry Emerging Trends
The exponential increase of digital communication and services, demand for storing,
managing, and distributing large amounts of data and information is reflected in the growth of
the U.S. data center market. The number of internet users and applications has been rising
dramatically for decades. Commercial users, such as retail and eCommerce companies,
increasingly rely on the internet to provide their services and to store data. Traditional services
7
provided by brick-and-mortar businesses are going online. Consider Carvana, which is
transforming how used cars are bought.
10
Non-commercial users access the internet for
emailing, texting, streaming videos and music, gaming, and social networking.
Data centers are a key resource for digital communications and services. They are centralized
repositories of computer servers that provide these electronic services. Consequently, more
data centers are built to meet the demand of the rising amount of data that is created and
stored. The U.S. Data Center Market is valued at $8.4 billion in 2020, and it is projected to
reach $13.91 billion by 2026, with a compound annual growth rate (CAGR) of 8.63 percent
during the forecast period (2021-2026).
11
The increased demand worldwide for data centers applies to both enterprise data center
facilities owned and operated by the company they support (e.g., Amazon Web Services (AWS),
Microsoft, Google, or Apple), as well as colocation data centers. Colocation data centers rent
out rack space to third parties for their servers or other network equipment. Colocation data
centers are often used by businesses that do not maintain their own data centers, but want
the benefits provided by data centers.
12
The COVID-19 pandemic has also boosted the global data center market. Demand for data
centers has grown due to:
• Increased demand for internet-related services resulting from COVID-19 lockdowns,
leading internet traffic upsurges between 25 and 30 percent during the periods of the
initial lockdown period (March-April 2020) worldwide, 10X times more than normal
growth (~3 percent per month).
13
• Companies and government migrating from locally hosted applications and data to
cloud services provided by data centers.
The pandemic prompted organizations to consider enhancing their technology infrastructure,
potentially accelerating the growth of the market in the near future. COVID-19 has led to
10
Retail & eCommerce Transformation Leads to Data Center Boom. Retrieved from: https://www.vxchnge.com/blog/transformation-of-
retail-to-data-centers.
11
United States Data Center Market - Growth, Trends, COVID-19 Impact, and Forecasts (2021 - 2026). Retrieved from:
https://www.researchandmarkets.com/reports/5120080/united-states-data-center-market-
growth?utm_source=BW&utm_medium=PressRelease&utm_code=n662p8&utm_campaign=1532805+-
+United+States+Data+Center+Market+Growth%2c+Trends%2c+COVID-19+Impact%2c+and+Forecasts+Report+2021-
2026&utm_exec=chdo54prd.
12
https://www.racksolutions.com/news/data-center-trends/what-is-a-colocation-data-center/.
13
Diana Olick. (2021, March 9). Data center real estate is primed to boom after the pandemic forced lives online. CNBC.
Retrieved from: https://www.cnbc.com/2021/03/09/data-center-real-estate-reits-after-covid.html.
8
increased awareness of the benefits of cloud services, as well as to increased pressure from
boards and governance entities to provide more secure and robust IT environments.
Wholesale rental demand for data centers, however, did fall 11 percent in 2020, due mostly
to organizations freezing their IT budgets at the start of the COVID pandemic. However, the
rental rate stabilized by H2 2020 to $121 per kW/month, down from $126 per kW/month in
2019.
14
According to a report by CBRE Research, the research arm of CBRE, a major international
commercial real estate brokerage, total inventory in primary markets grew by 152.9
Megawatts (MW) (5.9 percent) in H2 2020 and by 291.8 MW (11 percent) year-over-year.
(Note: Growth in the data center real estate sector is measured in power, not square footage.)
Construction capacity in the primary markets grew by about 84.2MW in H2 2020 from H1
totaling 457.8 MW, an increase of 182.9 MW from 2019. The following figure shows the
demand (absorption) against the supply under construction for the primary and secondary
data center markets in the U.S.
15
Figure 1: Demand (Net Absorption) vs. Supply Under Construction 2020 for
Primary & Secondary Markets
The following tables provide a snapshot of the fundamentals of the data center real estate for
the primary and secondary markets in the U.S., which includes year-to-year change for the
various key factors.
16
14
CBRE Research, “A Source of Stability: Digital Infrastructure in 2020, North American Data Center Report H2
2020.” Retrieved from https://www.cbre.us/research-and-reports/North-American-Data-Center-Report-H2-2020
15
Ibid.
16
Ibid.
9
Table 1: 2020 Primary Markets Fundamentals
Table 2: 2020 Secondary Markets Fundamentals
Key trends from CBRE’s market survey include:
17
• Data centers continue to be one of the fastest growing real estate sectors pre-
pandemic and remained strong in 2020 as government agencies and businesses
reconfigured their digital infrastructure to improve their remote work capabilities, and
tech giants and cloud service providers raced to meet consumer and corporate
demand.
• The CBRE data shows 329.6 MW of net absorption in 2020 across the seven primary
U.S. data center markets: Northern Virginia, Dallas, Silicon Valley, Chicago, Phoenix,
New York Tri-State and Atlanta. While down 11 percent from the peak in 2019, 2020
absorption was still higher than any other year on record. Meanwhile, vacancy at data
centers fell to just 8.5 percent, despite an 11 percent growth in new supply.
• The handful of data center real estate investment trusts (REITs) were among the
highest-performing in the REIT sector in 2020. They ended the year up 21 percent.
Major names include CoreSite Realty, CyrusOne, Digital Realty, Equinix and QTS Realty
Trust.
18
17
Ibid.
18
Diana Olick. (2021, March 9). CNBC.
10
• Strong demand and an uptick in investor interest in direct investment due to the
strong performance of data center REITs in 2020 resulted in a 457.8-MW data center
construction pipeline in the primary markets, up 62 percent from the end of 2019.
More than half of the current pipeline is pre-leased.
• The importance of network connectivity/bandwidth and availability of power cannot be
overstated for developing high-quality, robust data center capacity.
Figure 2 illustrates the historical trend of the Data Center Primary Markets fundamentals.
19
Figure 2: 2015 - 2020 Primary Markets Fundamentals
O t her Data Center Markets
For comparison purposes, the following figures summarize key data f or four (4) of the primary
data center markets outside of Northern Virginia: Atlanta, Chicago, Phoenix, and Silicon Valley.
20
19
Ibid.
20
Ibid.
11
Figure 3: Atlanta Market Data and Trends
Figure 4: Chicago Market Data & Trends
12
Figure 5: Phoenix Market Data & Trends
Figure 6: Silicon Valley Market Data & Trends
13
N o rthern Virginia Emerging T rends
Northern Virginia continues to be the largest data center market in the United States. (It is also
the largest data center market in the world through 2020.
21
) As shown in Figure 7 below, data
centers in Northern Virginia make up 48 percent of the primary market inventory of data
centers in the United States. The next largest market for data centers in the United States is
Dallas/Ft. Worth which has 13 percent of the primary market inventory. According to CBRE,
historical supply growth of data centers, including what is under construction, preleased, or
newly delivered, remained relatively high through 2020. Overall demand outpaced new supply,
keeping the vacancy rate less than 8 percent.
22
Altogether, according to Jones Lang LaSalle (JLL), another international commercial real estate
brokerage, the Northern Virginia data center market added 380 MW of single-tenant inventory
and 230 MW of multi-tenant inventory in 2020. The Northern Virginia market had 323 MW of
net absorption in 2020 with social media accounting for 176 MW or 54 percent of that.
23
Figure 7: Percentage of Primary Market Inventory
21
Northern Virginia Technology Council, “The Impact of Data Centers on the State and Local Economies of Virginia.”
Retrieved from: https://www.nvtc.org/NVTC/Insights/Resource_Library_Docs/2020_NVTC_Data_Center_Report.aspx.
22
CBRE Research, “A Source of Stability: Digital Infrastructure in 2020, North American Data Center Report H2
2020.” Retrieved from https://www.cbre.us/research-and-reports/North-American-Data-Center-Report-H2-2020.
23
JLL, “2020 Year-End Data Center Outlook: A Review of the Industry’s latest trends and what to expect in 2021.”
Retrieved from https://www.us.jll.com/en/trends-and-insights/research/data-center-outlook.
14
All of the real estate research providers predict continued market strength for the Northern
Virginia data center market in 2021. In its 2020 H2 data center market report, CBRE noted
that a large amount of preleasing in the second half of 2020 will contribute to strong supply
and demand figures in 2021. Additionally, CBRE reported 12 land transactions in Northern
Virginia in 2020, which has contributed to a dwindling supply of available land.
24
Rental rates in the Northern Virginia market are relatively low compared to other markets. For
example, rental rates for sub 250 KW space is $125 on the low side and $180 on the high
side in Northern Virginia, which is lower than several other U.S. markets, including Atlanta,
Austin/San Antonio, Dallas/Ft. Worth, Denver, New York, Northern California and Phoenix.
25
Average power rates in Northern Virginia have consistently stayed at 5.2 cents per KWh for the
last five years. Again, this rate is lower than power rates in many of the data center locations in
the U.S. including Austin/San Antonio, Boston, Chicago, Denver, Houston, Los Angeles, New
Jersey, New York, Northern and Southern California, and Phoenix.
26
Since power makes up
approximately 40 percent of the operating costs of a typical data center, Northern Virginia’s
relatively low power costs are a competitive advantage versus other markets.
27
Prince William
County is primarily served by Northern Virginia Electric Cooperative (NOVEC), whose average
industrial (vs. residential or commercial) power price is 6.66 cents per KWh.
28
Loudoun County
is primarily served by Dominion Energy, whose average industrial power price is 6.05 cents per
KWh.
29
Jones Lang LaSalle (JLL), an international real estate brokerage, offers the following market
outlook for data center users in Northern Virginia:
• Historically low rental rates and additional concessions;
• Still many high-quality options for users to consider; and
• Competition for users will stay strong for the foreseeable future
30
24
CBRE Research.
25
JLL.
26
Ibid.
27
U.S Chamber of Commerce, “Data Centers, Jobs and Opportunities in Communities Nationwide.” (2017). Retrieved
from https://www.uschamber.com/report/data-centers-jobs-opportunities-communities-nationwide.
28
FindEnergy.com, Northern Virginia Electric Cooperative Rate & Electric Bills. Retrieved from:
https://findenergy.com/providers/northern-virginia-electric-cooperative/.
29
FindEnergy.com, Northern Virginia Electric Cooperative Rate & Electric Bills. Retrieved from:
https://findenergy.com/providers/dominion-energy/.
30
JLL.
15
For data center providers in Northern Virginia, JLL’s market outlook is as follows:
• Margins for providers are decreasing because of aggressive new competitors;
• Large hyperscale deployments on land owned by the providers is at historic highs; and
• Providers must be more flexible with users and offer more services and better
connectivity options to the cloud.
31
As noted above, there were several major site sales in Northern Virginia for data centers.
Seven (7) of the most recent site sales, included in Table 3 below, document the increasing
price per acre that is the result of dwindling land inventory for data centers.
32
Table 3: Northern Virginia Recent Site Sales
Source: Cushman & Wakefield, 2021.
Data center real estate specialists contacted for this study indicate that the biggest market
challenge for Northern Virginia going forward is likely to be the lack of available development
sites. Ashburn, which is home to about 80 percent of the data centers in Northern Virginia, no
longer has any available land sites, short of some limited redevelopment options. Given those
limits, data center providers have been focusing on the next best option, which is Manassas.
At this juncture however, the data center real estate specialists stress there are actually
relatively few land sites left in Manassas.
One concern sometimes cited is the risk of data center obsolescence. Industry research
company International Data Corporation (IDC) puts the average age of a data center at nine (9)
years old. However, the exponential growth in digital data, services, and communications is
forcing data centers to modernize their platforms to support more capacity, reliability,
31
Ibid.
32
Cushman & Wakefield, “Data Center Update Americas: United States and Canada.” (2021). Retrieved from
https://www.cushmanwakefield.com/en/insights/americas-data-center-update.
16
scalability, and faster processing speed. It is generally far more cost effective to modernize
the equipment in a data center than to relocate and build one from scratch.
Data center real estate specialists also indicate that the pandemic has had minimal effect on
the Northern Virginia data center market. If anything, there has been an acceleration of the
data center market because it has caused a lot of smaller corporations to shift their workload
to the cloud or to a more virtual environment, thereby increasing demand for data centers. The
pandemic has had some impact on construction; the real estate community say they are
beginning to see slight delays in construction, perhaps a month or two because of construction
supply issues.
Finally, data center real estate specialists see Maryland’s recent movement in encouraging the
development of data centers as possible preparation for Northern Virginia reaching data
center capacity limits. First, in 2020 the Maryland General Assembly established an exemption
from Maryland sales and use tax on the purchase of qualified data center personal property
for up to 20 years. Then, in June 2021, Quantum Loophole, a data center developer, and TPG
Real Estate Partners announced the purchase of a 2,100-acre property in Frederick County,
Maryland for data centers. The site, which is located approximately 26 miles from Ashburn
across the Potomac River, is a former manufacturing site for Alcoa. The CEO of Quantum
Loophole, Josh Snowhorn, indicates that that the reclaimed site has “the entitlement, power,
water and proximity to Northern Virginia that the Internet industry needs for success.” With
land costs at less than $50,000 per acre compared to $400,000+ per acre in Northern
Virginia, the Frederick County site has the potential to offer a lower cost alternative for data
center providers and users.
33
Best Practices/Competitive Assessment – Economic Development
Programs
This section provides an overview of best practices that state and county governments use to
attract and retain data centers in their jurisdiction, assessing the extent to which these
practices are helping other jurisdictions compete with Northern Virginia. As noted in above,
Northern Virginia has by far the most data centers of any region in the United States. The
region is a leader in establishing best practices for promoting by-right development of data
centers and extracting community benefits from the industry. However, some of the assets
and best practices that have propelled Northern Virginia to become the epicenter for the
industry in the nation are not necessarily unique to the area. There is evidence that nearby
areas in Maryland, and central and southwestern Virginia are also implementing similar best
33
Massive Maryland property sells for $100M. bizjournals.com. (2021, June 28). Retrieved from:
https://www.bizjournals.com/baltimore/news/2021/06/28/alcoa-sells-maryland-property.html.
17
practices and are located close enough to major cities on the Eastern Seaboard, one of the
primary assets of Northern Virginia as a data center hub.
While Northern Virginia will likely remain the largest data center hub in the nation for the
foreseeable future, Prince William County may face competition from other attractive, nearby
locations with similar land use policies and economic incentives, if land supply is limited. This
analysis provides a summary of the key factors data centers and developers consider in site
selection as well as a comparison of economic incentives by jurisdiction, focusing on nearby,
competing areas. In so doing, it highlights both why Northern Virginia has become a dominant
player in the market and why other nearby areas may also be attractive locations for future
data centers.
D a ta Center Site Selection Criteria
Data centers tend to prioritize six key factors when selecting new sites for development: fiber
connectivity, environment, access to electrical power, access to water, a skilled workforce, and
policy incentives. Of these, by far the most critical is access to high-bandwidth connectivity,
such as fiber. (It is worth noting that some companies are seeking to diversify the location of
their data for added reliability and security,
34
although this is a nascent trend to continue
monitoring.) The growth of the data center industry in Northern Virginia’s “Data Center Alley” in
Ashburn has been driven primarily by the density of fiber networks. Studies, news reports, and
interviews with data center and real estate experts interviewed for this report confirm that
other factors are outweighed by the proximity of a data center to the fiber network
infrastructure.
Northern Virginia’s history with fiber began in Ashburn in the 1990s with the development of
some of the first-ever internet exchanges and data centers by companies like AOL and
Equinix.
35
These networks attracted other businesses which led to high interconnectivity of
the network, allowing for a speedy and efficient exchange of information for any company
connected to the network. This history has helped the region evolve into the largest peering
point, where Internet networks come together to exchange traffic between their networks in
North America.
36
Even as land prices throughout Northern Virginia, increase to over $1 million
per acre, the upfront cost of land is becoming an increasingly small part of the total
development cost, particularly in comparison to the market value of connectivity to the
network. In an article in ‘Data Center Knowledge,’ a managing director at Jones Lang LaSalle,
34
“Virginia’s land dilemma,” Data Center Dynamics (2020, January 6). Retrieved from:
https://www.datacenterdynamics.com/en/analysis/virginias-land-dilemma/
35
“Ashburn’s Fiber-Fueled Data Center Boom.” Data Center Knowledge (2018, March 14). Retrieved from:
https://www.datacenterknowledge.com/data-center-world/ashburn-s-fiber-fueled-data-center-boom
36
“Creating the Digital Infrastructure Capital of the World” Equinix. (2020, November 10). Retrieved from:
https://blog.equinix.com/blog/2020/11/10/creating-the-digital-infrastructure-capital-of-the-world/
18
one of the largest real estate brokers for data centers in Northern Virginia, remarks “if real
estate prices deterred people from moving into an area, places like Manhattan wo uldn’t be
what they are today.”
37
This echoes sentiments from experts and publications that high-
bandwidth network interconnectivity is the main asset for the industry in Northern Virginia.
By proximity to Loudoun County but also in its own right, Prince William County provides
companies and data center operators convenient access to the most interconnected network
in the world, with close access to inter-continental cables in New Jersey and Virginia Beach.
The stable growth in demand for data centers underscores this feature. Accordingly, site
selection factors that affect the price of data center development and operations like tax
breaks and other subsidies, will have marginal impact on the decision of data centers to locate
there. As discussed in the next section, Loudoun County has a higher tax rate for business
and personal property than Prince William County, but remains the epicenter of the industry
and continues to draw demand for new development.
Northern Virginia also satisfies the other main criteria for data center site selection, with its
relatively mild climate, lack of seismic activity, access to one of the most highly educated
workforces in the country, and electrical power supply from utility providers that are actively
responding to the needs of data centers. It is notable that access to cheap electrical power is
itself not the main concern for data centers. Rather, it is that data centers have insisted on
obtaining renewable energy, accelerating their shift towards more renewable energy for its
grid. Together, these factors also help to position Prince William County to absorb more
demand from data centers, increasing the County’s tax base. Not only is Prince William County
in a position to continue absorbing data centers, given its prime location, the County could
potentially extract additional community benefits, such as requiring data centers to use
recycled, non-potable water for cooling purposes, a feature that already exists in Loudoun
County. Many data center operators and developers emphasize sustainability, and Prince
William County could easily leverage this desire to extract environmental concessions through
its land use policy.
However, Prince William County is not the only jurisdiction adjacent to the center of Northern
Virginia’s data center industry in Ashburn with all of the same environmental and electrical
assets as well as available land. As available sites in Loudoun County are sold, and if land in
other nearby areas like Prince William County is unavailable, there are other areas that could
seize the demand for proximity to the hub in Ashburn, both within Virginia and other states,
particularly in neighboring Maryland. Fairfax County, for example, is well-positioned to attract
data centers, which it already does and will likely continue to do. Jurisdictions in Maryland,
such as Frederick County, divided from Loudoun County only by the Potomac River, could
attract data centers while offering many of the same assets. Quantum Loophole recently
37
“Ashburn’s Fiber-Fueled Data Center Boom.” Data Center Knowledge (2018, March 14). Retrieved from:
https://www.datacenterknowledge.com/data-center-world/ashburn-s-fiber-fueled-data-center-boom
19
agreed to develop data centers on a 2,100-acre property in Frederick County, with the
intention of building a fiber ring to connect to the hub across the river.
38
This Frederick County
site will certainly be more cost competitive than most Northern Virginia sites because the land
prices are so much lower.
Northern Virginia is not even the only region in the state with its own unique network asset.
Henrico County is home to the only network access point (NAP) in the country, which connects
a variety of land-based data centers, such as those in Northern Virginia, to two high-speed
underwater data cables to Spain and Brazil
39
. These cables include the MAREA cable, which
connects to Spain through Virginia Beach and is the fastest subsea cable in the world. The
NAP serves as a hub for land-based data centers to connect to the subsea cables, positioning
Henrico to attract significant attention from data centers seeking access to the NAP. In August
2020, Facebook completed the first phase of a $1.75 billion, 2.3 million square foot data
center project in Henrico County. In addition, as discussed further in the next section, Henrico
County is actively seeking to attract data centers by implementing one of the lowest personal
property tax rates for data centers in Virginia, at just $0.40 per $100 in assessed value.
Henrico County is not only poised to build on the presence of the NAP to attract data centers
as a destination itself, but also may be a prime candidate to absorb demand from Northern
Virginia as available land for data center development runs out. Henrico County also has a
talented workforce, with regional organizations and institutions, including Virginia
Commonwealth University, which are fostering talent specifically to work in a growing local IT
economy.
If most of the environmental and electrical needs can be satisfied by other jurisdictions near
Loudoun County, and other areas offer their own connectivity advantages, the main factor that
will determine where data centers are developed will come down to the availability of land.
Where land is available, the decision will likely come down to the incentives offered by
competing jurisdictions, but existing policies in Prince William County are already competitive
with incentives in other Northern Virginia counties and in Maryland. Accordingly, the
availability of land will be the primary factor determining site selection in the near future. This
suggests that if Prince William seeks to maximize the economic and fiscal potential of data
centers, it must have enough available space to absorb demand.
C o mparison of Incentives in Competi ng Areas
Land use and economic incentives can help attract data centers, even though network
connectivity is by far the most important factor for data centers when it comes to site
38
“Quantum Loophole buys 2,100-acre property in Frederick County, Maryland for gigawatt data center campus” Data
Center Dynamics. (2021, June 28). Retrieved from: https://www.datacenterdynamics.com/en/news/quantum-loophole-
buys-2100-acre-property-in-frederick-county-maryland-for-gigawatt-data-center-campus/
39
“Henrico poised to become global internet hub.” Henrico Citizen. (2019, May 17). Retrieved from:
https://www.henricocitizen.com/articles/henrico-poised-to-become-global-internet-hub/
20
selection. There are two main economic incentives that jurisdictions offer data centers:
reduced personal property tax rates, and reduced sales and use tax rates. Table 4
summarizes tax rates for data centers in Virginia and select counties, and in Maryland and
select counties. These jurisdictions represent direct competitors to Prince William County as
these data centers take advantage of the access to the Northern Virginia network and Virginia
Beach subsea cable while satisfying the other site selection criteria such as a stable
environment and availability of renewable electrical power. As available land is seized up by
data centers, or placed under easement in Northern Virginia, these markets would be
particularly attractive to data centers for many of the same reasons Northern Virginia was
attractive in the first place.
21
Table 4: Economic Incentives and Land Use Policies in Virginia and Maryland
Source: BAE, 2021.
Of the Northern Virginia counties, Prince William has the lowest personal property tax for data
centers, at $1.50 per $100 of assessed value for eligible equipment (i.e., computer
equipment, cooling equipment, etc.). Combined with Virginia’s sales and use tax exemption
Yes. Data center must invest $150 million or more, hire 50
or more employees, pay at least 1.5 times the average
local w age, and enter into an MOU with the Virginia
Economic Development Partnership.
$1.50 per $100 of Assessed Value. Rate for general
business equipment is $3.70
$4.57 per $100 of Assessed Value. No.
$0.40 per $100 of Assessed Value. No.
Lonesome Pine
Regional Industrial
Facilities Authority
(a)
$0.24 per $100 of Assessed Value. Rate for general
business equipment averages $1.59 in the region.
No.
Yes. Exempt from sales and use tax of qualified personal
property. Data Centers must create at least five qualified
positions and make a minimum investment of:
- At least $2 million in qualified data center personal
property for a business located w ithin a Tier 1 Area, and
- At least $5 million in qualified data center personal
property for a business located in any other area of the
State.
The benefit period expands to 20 years, subject to annual
renew al, if the business invests at least $250 million in
qualified data center personal property w ithin the first ten
years after submitting an application.
Prince George's
County
Rate: $250 per $100 of Assessed Value
Projects w ith $200 million or more of investment and that
create a total of 15 jobs or more may qualify for a 15-year
personal property tax reduction in assessment as
follow s:
(i)Years one through five — up to 100% reduction in
assessment in personal property tax; and
(ii)Years six through ten — up to 50% reduction in
assessment in personal property tax;
(iii)Years eleven through fifteen — up to a 25% reduction
in assessment in personal property tax.
Projects w ith $50 million or more of investment and that
create a total of five jobs or more may qualify for a 10-
year tax personal property tax reduction in assessment
as follow s:
(i)Years one through five — up to 90% reduction in
assessment in personal property tax; and
(ii)Years six through ten — up to 40% reduction in
assessment in personal property tax.
Yes. Sales and Use tax refund for tax paid on qualified
computer data center equipment for a period of 15 years.
Minimum investment of $25 to $50 million depending on
size of given jurisdiction. Data center pay annual
compensation of at least $1 million to employees.
22
for eligible purchases, this positions Prince William County competitively compared to Loudoun
and Fairfax counties. From a data center’s perspective, the Virginia state sales and use tax
exemption might seem relatively restrictive compared to the Maryland state sales and use tax
exemption, which enables smaller data centers to utilize the incentive, whereas the Virginia
exemption is aimed at larger-scale investments. However, Virginia’s share of the market and
inherent assets likely influence the policy, while Maryland is seeking to build its data center
footprint in comparison. At the county level, only Prince George’s County has its own incentive
independent of Maryland’s state-level incentive. This incentive is not necessarily more
competitive than those found in Virginia counties. For example, Prince George’s County offers
a reduction in the business personal property tax assessment for certain periods of time, while
maintaining its rate of $4.25 per $100 in assessed value. Prince William County, on the other
hand, simply offers a much lower personal property tax rate of $1.50.
In terms of zoning ordinances, Loudoun, Fairfax, and Henrico counties in Virginia allow by-right
development of data centers in a range of commercial, office and industrial zones. Fairfax
County imposes additional size and design and regulations for data centers in the denser
nonresidential zones, as shown in Table 5. Henrico County permits by-right data center
development in all office, business and industrial zones. Henrico County also has a Form
Based Alternative Overlay District that also permits data centers. The purpose of the zone is to
regulate the form of development as opposed to regulate the zone by land use, meaning data
centers in this zone must comply with certain design and setback standards. Prince George’s
County in Maryland passed specific data center zoning ordinance permitting data centers in a
range of non-residential zones, also shown in Table 5.
23
Table 5: Data Center Zoning Ordinances in Competitive Areas
Source: BAE, 2021.
Comparing incentives reveals the strength of Henrico County in particular compared to
Northern Virginia as a potential competitor in the future. As mentioned in the previous section,
Henrico County is home to the NAP, with its direct connection the MAREA subsea cable. This
feature is driving demand in Henrico County, but this demand is independent of demand in
Northern Virginia as access to the high-density dark fiber network in Ashburn remains a key
attraction of Northern Virginia. Nonetheless, as land for data centers becomes increasingly
scarce, Henrico County may also evolve into an alternative to Northern Virginia. With a
personal property tax rate of just $0.40 per $100 in assessed value, Henrico County may
accelerate the shift away from Northern Virginia, particularly if land scarcity increases faster
than expected in Northern Virginia. Additionally, the member jurisdictions of the Lonesome
Pine Regional Industrial Facilities Authority (Dickenson, Lee, Scott, and Wise counties, and the
city of Norton) recently cut the personal property tax rate for data centers to the lowest in the
state, at just $0.24 per $100 in assessed value. This rate might be particularly attractive for
Data Center-specific
Data Center Allowed Zones Allowing By-Right
Jurisdiction Zoning Ordinance By Right in OFF/IND Zones Data Center Development
Virginia
State n.a. n.a.
Loudoun County No. Yes.
Commercial Light Industry, Office
Park, Research and Development
Park, Industrial Park, General
Industry.
Fairfax County No. Yes.
With size limits: I-2, I-3, C-3, C-4
Without limits: I-4, I-5, I-6
Henrico County No. Yes.
All Office (O-1, O-2, O-3), Business
(B-1, B-2, B-3), and Industrial (M-1, M-
2, M-3) District, as w ell as the Form
Based Alternative Overlay District,
w hich is a zone that is intended to
focus on built form as opposed to
land use.
Maryland
State n.a. n.a.
Prince George's
County
Yes. Yes.
R-R (Rural Residential), C-O
(Commercial Office), C-S-C
(Commercial Shopping Center), M-A-
C (Major Activity Center), R-S
(Residential Suburban Development),
E-I-A (Employment and Industrial
Area), M-X-T (Mixed Use -
Transportation-Oriented), and
Industrial Zones
Frederick County No. No.
Pennsylvania
State n.a. n.a.
24
smaller scale data centers that are unable to pay the premium for land in Northern Virginia as
it runs out.
S u m mary
In terms of site selection factors, Northern Virginia satisfies the main criteria data centers are
looking for other than connection to a high-speed, fiber network infrastructure that serves the
Eastern seaboard as well as the large institutional customers like the government and defense
companies in DC-Maryland-Virginia region. In terms of access to such a network, Northern
Virginia, centered around Ashburn, provides the highest-density of fiber in the country, leading
to a level of growth in the industry unmatched by any other market. However, regions
immediately adjacent to Northern Virginia are transforming into viable alternatives given that
they also satisfy site selection criteria and offer similar proximity to the network in Ashburn
that Prince William County does. As a result, there are two factors that are becoming
increasingly important to the site selection process for data centers: the availability of land,
and incentives/ease of development in places with available land.
Limiting the amount of land available in Prince William County for data center development
would help position Fairfax County, Frederick County (MD), and Prince George’s County (MD) to
accelerate growth of data centers as they are the next closest jurisdictions to Loudoun County.
Other than available land, Prince William County offers a more competitive personal property
tax exemption than Fairfax County, and a comparable exemption to that of Prince George’s
County (MD). However, the establishment of the NAP in Henrico County, and the MAREA
subsea cable in Virginia Beach, as well as Henrico County’s very low personal property tax rate,
may accelerate demand in that region of the state independent of the hub in Northern Virginia.
As the number of data centers increases in Henrico County as a result of this, it could help
Henrico County also position itself as an alternative to Northern Virginia, particularly as land
becomes unavailable for data centers. Nonetheless, despite the promise of other locations,
data centers will continue to seek available land in Prince William County to remain close to
Loudoun County’s “Data Center Alley,” so the amount of data center development will
ultimately be determined by the availability of land.
Economic Impacts of Data Centers
I n troduction
To provide an estimate of the economic impacts of data centers on the Prince William County
economy, this analysis considers three types of impacts: jobs, worker compensation, and total
economic output generated by data centers in Prince William County.
M e thodology
To estimate the anticipated economic impacts of data centers, this study uses IMPLAN, a
widely used economic modeling software package. Core to the model is an input-output dollar
flow table. For a specified region, the input-output table accounts for all dollar flows between
25
different sectors of the economy. Using this information, IMPLAN models the way income is
spent and re-spent in other sectors of the economy, generating waves of economic activity and
job creation, or so-called “economic multiplier” effects. Once the economic events have been
entered into the model, IMPLAN reports the following types of impacts:
• Direct Impacts. Direct impacts refer to the set of producer or consumer expenditures
applied to the predictive model for impact analysis. It is the amount of spending
available to flow through the local economy. IMPLAN then displays how the local
economy would then respond to these initial changes. The direct impacts may equal
the amount of spending input into the model, depending on a variety of factors.
• Indirect Impacts. The indirect impacts refer to the impacts of local industries buying
goods and services from other local industries. The cycle of spending works its way
backward through the supply chain until all money leaks from the local economy,
either through imports or by payments to income and taxes.
• Induced Impacts. The induced impacts refer to an economy’s response to an initial
change (direct impact) that occurs through re-spending of income according to
household spending patterns. When households earn income, they spend part of that
income on goods and services, such as food and healthcare. IMPLAN models
households’ disposable income spending and distributes it through the local economy.
To conduct the analysis, BAE has reviewed other data center economic impact studies for
information on typical characteristics of data centers and developed a prototype data center
with the characteristics as shown in Table 6. Actual data centers come in a variety of sizes,
ranging from less than 100,000 square feet to well over one million square feet and
employment per square foot can vary depending on the specific needs of each data center.
Table 6: Prototype Data Center in Prince William County
Note:
All dollar amounts in 2021 dollars.
(a) Includes labor and materials costs for building construction. Excludes IT equipment-related expenditures.
(b) Excludes construction jobs supported during construction period. See text for discussion of construction period impacts.
(c) Average compensation is for permanent jobs, not construction period jobs.
Source: BAE
Metric Value
Square Feet 250,000
Construction Cost per SF $1,100
Total Construction Costs $275,000,000 (a)
Square Feet per Worker 9,000
Permanent Jobs 28 (b)
Total Compensation per Worker $180,000 (c)
Total Worker Compensation $5,040,000
26
The analysis here examines two categories of impacts from a prototype data center: the
construction-related impacts, which are for the construction period only, and the impact of the
ongoing operations of the prototype data center. As a final step for each of the two impact
types, the analysis provides estimates of impact on a per 10,000-square-foot basis. All
impacts considered are within Prince William County.
I m pacts d uring Construction Period
As shown above, construction costs for the prototype were estimated at $1,100 per square
foot, or a total of $275 million, excluding IT equipment-related costs. It is assumed for the
purposes of this analysis that the construction period is one year; the resulting employment
and output discussed here is only for that 12-month period. It is important to note that the
resulting jobs and economic activity associated with construction of the facility do not continue
after construction is completed.
The estimated employment, labor income, and economic output generated from construction
of the prototype data center are shown below in Table 7. Over the assumed 12-month
construction period, the construction activity would support a total of almost 1,700 estimated
direct jobs (i.e., jobs at the construction site), an additional 407 indirect jobs at other
businesses supporting the construction, and 301 jobs resulting from worker expenditures
during the construction period.
40
The jobs over the construction period of approximately $111
million in direct labor income
41
, $23 million in indirect labor income, and $12 million in
induced labor income.
Along with the estimated $275 million in direct expenditures for construction, the prototype
data center would generate additional economic output as the construction dollars flow
through the County’s economy to businesses supporting and supplying the project, and from
induced activity at businesses as worker households spend some of their earnings in the
County. The indirect impact is estimated at approximately $73 million, and the induced
impact is estimated at approximately $44 million during the construction period. This table
also provides estimates of impact per 10,000 square feet, permitting further analysis of data
centers of varying sizes.
40
These are jobs in the study area, which in this analysis is limited to Prince William County. Additional jobs, labor
income, and economic output may be supported outside of the County. The workers employed in the county may live
elsewhere. The IMPLAN software factors out expenditures for materials obtained from outside of Prince William
County. The IMPLAN software also includes a commute factor to exclude impacts of labor income expenditures for
those workers residing outside the county.
41
Worker compensation includes wage and salary income and proprietor income, as well as benefits.
27
Table 7: Economic Impacts of Construction of Prototype Data Center in Prince
William County
Notes:
Totals may not sum from parts due to independent rounding.
(a) Dollar figures given in 2021 dollars. Dollar amounts rounded to the nearest thousand dollars.
Sources: IMPLAN; BAE, based on various data center studies.
A nn ual Ongoing Operating Impacts
The inputs for the IMPLAN analysis are as shown above in Table 7 to estimate the annual
economic impacts that the operation of the of a prototype data center would generate on an
ongoing basis within the Prince William County. The key variables driving the analysis are the
number of jobs and worker compensation. The IMPLAN sector assumed for the prototype data
center is data processing, hosting, and related services (sector 436). The results are shown on
an annual basis, e.g., labor income shows annual worker compensation.
F i ndings
The results of the IMPLAN analysis for ongoing operations are shown in Table 8. For the
prototype 250,000 square foot data center, there would be an estimated 28 direct full-time
equivalent jobs. The demand for goods and services available in the County to support the
operations would support an additional 133 indirect jobs, and the expenditures of worker
households (from direct, indirect, and induced jobs created) would support 22 additional
induced jobs. Direct labor income is approximately $5.0 million annually (as also shown in
Table 6 above), with an additional $5.9 million in annual indirect labor income and $873
thousand in annual induced labor income. The total estimated regional economic output
resulting from ongoing operations of the prototype data center would total approximately
$54.6 million annually. This table also provides estimated of impacts per 10,000 square feet,
permitting further analysis of data centers of varying sizes.
Impact (a)
Employment Labor Income Output
Direct 1,697 $110,695,000 $275,000,000
Indirect 407 $23,166,000 $73,394,000
Induced 301 $11,747,000 $44,400,000
Total 2,406 $145,608,000 $392,794,000
Impacts per 10,000 SF Employment Labor Income Output
Direct 67.90 $4,428,000 $11,000,000
Indirect 16.28 $927,000 $2,936,000
Induced 12.05 $470,000 $1,776,000
Total 96.22 $5,824,000 $15,712,000
28
Table 8: Annual Economic Impacts of Operation of Prototype Data Center in Prince
William County
Notes:
Totals may not sum from parts due to independent rounding.
(a) Dollar figures given in 2021 dollars. Dollar amounts rounded to the nearest thousand dollars.
Sources: IMPLAN; BAE, based on various data center studies.
To provide some context, IMPLAN estimates that the data processing, hosting, and related
services industry sector (NAICS 518) accounted for 624 jobs in 2019. The prototype data
center would add 28 additional jobs in Prince William County, an increase of 4.5 percent, and
would result in an increase of 11.4 percent in labor income within the sector.
Table 9: Direct Impacts for Data Center Industrial Sector
Sources: IMPLAN; BAE.
Table 9 above shows the estimated impacts of ongoing operations of the prototype data
center in comparison to the overall Prince William County economy. As shown in Table 10,
IMPLAN estimates that project-related jobs (which includes direct jobs at the data center as
well as indirect and induced jobs) would be equal to 0.09 percent of the County’s total 2019
total jobs. Because of the relatively high wages for the permanent staff of the data center,
labor income and value added are equivalent to a slightly higher proportion of the Prince
Impact (a)
Employment Labor Income Output
Direct 28 $5,040,000 $33,479,000
Indirect 133 $5,889,000 $17,915,000
Induced 22 $873,000 $3,302,000
Total 183 $11,802,000 $54,696,000
Impacts per 10,000 SF Employment Labor Income Output
Direct 1.12 $202,000 $1,339,000
Indirect 5.32 $236,000 $717,000
Induced 0.89 $35,000 $132,000
Total 7.33 $472,000 $2,188,000
Labor
Employment Income
Direct Project Employment (a)
28 $5,040,000
Countywide Data Processing,
Hosting, and Related Services
624 $44,049,000
Project as % of County 4.5% 11.4%
29
William County totals. On a per job basis, the prototype project provides a higher level of value
added, at 130 percent of the current County average.
Table 10: Prototype Data Center as Percent of Regional Economy
(a) Includes direct, indirect, and induced impacts in Prince William County.
(b) Value added is equivalent to gross domestic product.
Sources: IMPLAN; BAE.
Market Demand Analysis
A typical market study would review supply of what is being analyzed, in this case data centers
in Prince William County, the potential market for those data centers, and with that
information, provide an estimate of future demand for data centers. At the request of Prince
William County, BAE provides most of the information about existing data centers in the County
at the aggregate level, to show a general picture of the current supply. In certain cases, where
public information is available about the data centers, BAE provides some more specific
information about existing centers if it is critical to include in the overall analysis.
Information about existing data centers in Northern Virginia, which includes Prince William
County, was obtained by reviewing industry reports, data center real estate reports, and
interviews with state and local economic development representatives. Information about
proposed data centers and land transactions was collected from articles in the local press or
industry reports. (It should be noted that some specific information about current data centers
in Prince William County is available to all on company websites.) Because of the limitations of
providing specifics about the existing data centers in Prince William County, including the
location of the centers, BAE market demand analysis is less specific and detailed in terms of
identifying the range of demand and the geographic location of that demand than what would
be typical for a market study. Nonetheless, the conclusions of the study should provide
guidance on the demand for data centers in the County as a part of what is considered when
deciding whether the data center overlay zone should be expanded.
Labor Value Value Added
Employment Income Added per Worker
Project (a)
183 $11,802,000 $20,719,000 $113,000
Prince William County (b)
214,985 $11,414,945,000 $18,793,006,000 $87,000
Project as % of County 0.09% 0.10% 0.11% 130%
30
D a ta Centers i n Northern Virginia
According to the data center information clearinghouse Baxtel, there are currently 180 data
center sites in Northern Virginia primarily in three counties: Fairfax, Loudoun, and Prince
William.
42
Northern Virginia is the largest data center market in the world. The area makes up
48 percent of the primary market inventory of data centers in the United States.
43
Most of the data centers in Northern Virginia are located in Loudoun County. Specifically, the
largest concentration of data centers is in an area known as “Data Center Alley” along the
Dulles Greenway (VA 267) which includes Ashburn, Sterling, and Leesburg. By far the largest
concentration of data centers in Data Center Alley is in Ashburn, in the area surrounding the
Equinix campus and Beaumeade Circle, as shown in Figure 8. The data center structures that
are considered part of the Data Center Alley or Fiber Alley are shown in red in this graphic.
Figure 8: Ashburn Data Center
42
Baxtel, “Northern Virginia Data Center Market.” Retrieved from https://baxtel.com/data-center/northern-virginia.
43
CBRE Research, “A Source of Stability: Digital Infrastructure in 2020, North American Data Center Report H2
2020.” Retrieved from https://www.cbre.us/research-and-reports/North-American-Data-Center-Report-H2-2020.
31
All of the major players in the industry have data centers in Loudoun County including Amazon
Web Services, Google, Microsoft Corp., CyrusOne, Digital Realty Trust, and Equinix. As shown in
Table 11, four of the five largest data centers in Northern Virginia are located in Loudoun
County. Each of these four is located in Ashburn, the largest of which is QTS Ashburn Lockridge
with 105 MW of power.
Table 11: Largest Data Centers in Northern Virginia
Company
County
Site Name
Total Building SqFt
Gross SqFt
Power (MWs)
QTS Data
Centers
Loudoun
QTS Ashburn Lockridge
NA
NA
105.0
Digital Realty
Trust
Loudoun
Digital Realty Loudoun Ashburn
Campus
1,700,000
NA
80.0
Equinix
Culpepper
Equinix Culpeper Campus
850,000
172,534
62.5
Digital Realty
Trust
Loudoun
44372 Round Table: Digital
Realty
223,200
NA
60.0
Aligned Energy
Loudoun
Aligned Ashburn
881,755 (est. at full
buildout 12/31/2020)
200,000 (est. at full
buildout
12/31/2020)
100.0 (at full
buildout
12/31/2020)
Source: Baxtel, BAE, 2021
Note: Where NA is noted, this information was not available. Typically, data center size is measured in megawatts.
While land options are becoming more limited, there are still several data centers in Loudoun
County currently under construction or in the planning stage. According to Loudoun County
Economic Development, the County has 25 million square feet of data centers currently
operational, with another four million square feet in development. The County attributes much
of the continued growth in the data center market to comparatively inexpensive power
available from Dominion Energy and to the Loudoun’s County’s Fast Track Program which
provides priority reviews for economic development projects that have a significant impact on
the tax base. Data centers are part of the fast track group—19 projects sought fast track
approval between July 2020 and December 2020 alone.
44
Prince William County also has a growing data center market. According to Prince William
County economic development officials there are currently 26 data centers in the County, with
seven additional campuses currently under construction. There are also three or four other
campuses that Prince William County expects to be under construction within the next two
years. According to the 2021 Cushman & Wakefield report “Data Center Update Americas:
United States and Canada,” one of the planned centers is a 1,100,000 square foot Amazon
Web Services data center with 150 MW of power.
45
44
Miller, Rich. “Data Center Construction Surging Amid Supply Constraints in Top Markets.” Retrieved from
https://datacenterfrontier.com/data-center-construction-surging-amid-supply-constraints-in-top-markets/.
45
Cushman & Wakefield, “Data Center Update Americas: United States and Canada.” (2021). Retrieved from
https://www.cushmanwakefield.com/en/insights/americas-data-center-update.
32
Companies with data centers in Prince William County presently include Iron Mountain,
Amazon Web Services (multiple facilities), CloudHQ, COPT, Equinix, Evoswitch, Opus
Interactive, QTS, and VAZATA. The largest of these is Iron Mountain which has two data centers
on its 83-acre campus. According to Iron Mountain’s website (www.ironmountain.com), the
first Iron Mountain building (VA-1) is 168,000 square feet and has 14 MW of power. The
second building (VA-2) has 221,500 square feet of space and 24 MW of renewable power. The
master plan for Iron Mountain includes two additional buildings totaling approximately
600,000 square feet of space.
Overall, in 2020 in the Northern Virginia market, 380 MW of single-tenant (e.g., Amazon Web
Services, Microsoft, etc.) data center inventory was added, while 230 MW of multitenant
inventory was added.
46
As of Summer 2021, there is an estimated 3 percent vacancy rate for
data centers in the Northern Virginia market.
47
C u rrent Market Demand for Data Centers
From interviews with data center real estate specialists, interviews with state and local
economic development officials in Virginia and Maryland, and industry reports, strong demand
for data centers persists in Northern Virginia. It is widely agreed that Loudoun County
continues to enjoy most of that demand, but Prince William County is poised to be the
recipient of more demand for data centers going forward if Loudoun County runs out of space.
Everyone contacted for this study indicated the growth potential for data centers in Prince
William County is quite strong. Current growth in the market overall in Northern Viriginia is
“explosive” as one data center real estate specialist indicated. As Prince William County
leaders review a proposal to expand the data center opportunity zone overlay district, which
would allow data centers by right, the following observations should be kept in mind:
1) Land prices for proposed data centers are rising to unprecedented heights – Land
sales for data center sites in Loudoun and Prince William counties between March and
August 2021 have ranged from $425,000 - $3.02 million per acre. In July 2021,
Microsoft purchased two parcels in Prince William County for a combined $95.1 million
or just over $1 million per acre. In August 2021, Amazon Web Services purchased
17.15 acres in Loudoun County for $32.5 million or over $1.85 million per acre.
48
46
JLL, “2020 Year-End Data Center Outlook: A Review of the Industry’s latest trends and what to expect in 2021.”
Retrieved from https://www.us.jll.com/en/trends-and-insights/research/data-center-outlook.
47
Cushman & Wakefield, “Data Center Update Americas: United States and Canada.” (2021). Retrieved from
https://www.cushmanwakefield.com/en/insights/americas-data-center-update.
48
Cordell, Carten. “Amazon Web Services Pays $32.5 million for Yet Another Data Center Parcel in Loudoun.”
Washington Business Journal. (August 13, 2021). Retrieved from
33
2) The primary drivers for data center real estate site selection are availability of power
and access to fiber – Data center real estate specialists indicate access to reliable
power and access to fiber are the most important factors in data center site selection.
Dominion Energy, which is the primary power source for Loudoun County, is the
preferred power provider for data centers. Though Prince William County gets its power
from Northern Virginia Elective Cooperative (NOVEC), Dominion provides transmission
power to Prince William County.
3) State economic incentives are important for attracting data centers, but not as
important as availability of power and access to fiber – The Commonwealth of Virginia
offers an exemption for retail sales and use tax for qualifying computer equipment
purchased by data centers that meet statutory investment and employment
requirements. General eligibility is $150 million of new capital investment, 50 new
jobs located at the data center in applicable locality (this job threshold is frequently
met by having multiple data centers owned by a company on a campus in a Virginia
county), and each new job at the data center must be paid at least 150 percent of
prevailing wage in the locality where the data center is located.
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These incentives are
helpful, but do not drive decisions according to data center real estate specialists.
4) Local personal property tax rates are a factor, but are not likely to be a primary
consideration for data center site selection – Different localities in Virginia charge
different personal property tax rates for data center personal property. In the more
populated parts of the state, these range from $0.40 per $100 of assessed value in
Henrico County to $4.57 per $100 of assessed value in Fairfax County. Prince William
County recently elected to raise the property tax on IT equipment, with a phased
increase through 2024 that shifts the rate from $1.35 per $100 to $2.00 per $100. It
is not yet known if this would affect demand in Prince William County.
5) Other serious competitors to Northern Virginia for data center investments are
emerging – Though demand for data centers in Northern Virginia remains quite strong,
a few other areas in the broader region are offering both sites and improved incentives
that may sway some data center interests in the longer-term including Henrico County
and Frederick County, Maryland. Of particular note is a June purchase of 2,100 acres
in Frederick County, Maryland by a joint venture of Quantum Loophole and TPG Real
Estate Partners for $100 million in cash ($47,619 per acre). The CEO of Quantum
Loophole indicates the site has “the entitlement, power, water and proximity to
49
There are lower thresholds for capital investment and jobs in “distressed localities,” but this would not apply to Prince William
County.
34
Northern Virginia that the internet industry needs for success.”
50
Additionally, as of
2020, Maryland now exempts sales and use tax of qualified personal property for data
centers. Data centers in Maryland must create at least five positions at the data center
and make a minimum investment of $5 million in qualified data center personal
property in most parts of the state, and $2 million in distressed areas or federal
Opportunity Zones.
6) The demand for data centers, particularly in Northern Virginia, is extremely strong
according to data center real estate specialists and industry representatives and will
likely remain so for many years. Most of these experts say there is practically
unlimited demand for data centers in Northern Virginia. They stress that the first
choice location for data center operations is Loudoun County, but the second choice is
Prince William County. The high rate of growth in the sector will continue and be
abated only by the lack of land availability.
50
Massive Maryland property sells for $100M. bizjournals.com. (2021, June 28).
https://www.bizjournals.com/baltimore/news/2021/06/28/alcoa-sells-maryland-property.html.