NoVa’s Data Center Reign Could Be Short-Lived if We Forget Why Data Centers are Good for Virginia

LEESBURG, VA – The centerpiece of CapRE’s Sixth Annual Washington, D.C. & Mid-Atlantic Data Center Summit was a keynote presentation titled The State of the Mid-Atlantic Data Center Market, which featured the input of Buddy Rizer, Executive Director for Economic Development at Loudoun County & Allen Tucker, Managing Director at Jones Lang LaSalle. The panel kicked off with a suggestion by Moderator Greg Stover, Director at Vertiv, for the pair of panelists to talk about what the unique aspects of the Northern Virginia market. Below is a snippet of that conversation, picking up on an oft-bandied about topic – whether NoVa will run out of resources.

data center summitAllen Tucker, Managing Director, Jones Lang LaSalle: Buddy [Rizer] kind of eluded to the idea that we’re going to run out of land. I don’t believe that either. We’re going vertical. Here’s the most important thing. Everyone says that the cost of land is going up. Really? Well that’s great. So what was everyone doing five to seven years ago when they were building $15 to $20 Million dollars a megawatt? That was a bigger impact than when you’re building $2 Million dollar per acre ground.

Moderator Greg Stover, Director, Vertiv: And I believe we’re talking about a 2 million dollar acre of ground vs a one million  dollar high-density cabinet. And now we’re definitely seeing some perspective. I mean we’ve got customers with a thousand cabinets that are at 800 grand a piece, in one room.

Allen Tucker, Managing Director, Jones Lang LaSalle: Greg did a great job at enumerating the density that’s going on. I’m doing a deal right now that is roughly a one megawatt-deal. For that 1 megawatt deal, the capital investment outside of the lease is $120 Million USD. So you have high density mainframes and that’s what is driving this market. And that’s why people can afford to pay for that ground.

Stover: Well, we’ve heard it today. Power is available, fiber is available. What are the other things that you think really differentiate this market, beyond the two obvious things that allow you to bring business and will allow you to continue to bring business to this area?

Buddy Rizer, Executive Director for Economic Development, Loudoun County

Buddy Rizer, Executive Director – Economic Development, Loudoun County: I think there are a couple of things. I think, first of all, once you become best in brand, it’s a lot easier to try to convince people, than at the beginning, when their CIO or whomever got fired for thinking that Ashburn was a data center location. I think that when you look at Virginia, which was first in having a really great data center sales tax incentive, eight or nine years ago –

Stover: Well, Arizona had that. And incentives are about getting to do things they wouldn’t otherwise do. once they start doing it, often those incentives go away. How do you feel about incentives today? Arizona lost business for about three years and they had to re-institute those incentives.

Rizer: I would tell you that we, and all of us here as an industry, have to continue to tell the story of why that is important. Two years ago, I would say that we need to get it extended to 2035. The sales tax exemption is currently on the books until 2035. But I think that in the last couple of years, people have looked at it and then they feel like this is an incentive that only benefits Northern Virginia. And if anyone follows the legislature, then you know that the last thing that the legislature wants to do is benefit Northern Virginia.

What we would like to see is a commitments to that incentive. They need to better understand why it’s important. That incentive is not about bringing data centers to Loudoun County. That incentive is about bringing customers and keeping customers in those data centers in Loudoun County, and other places in Virginia.

Stover: And their infrastructure and their employees.

data center summitRizer: The dumbest thing I hear, time and time again, is that they’re not going to pick up their data centers and move them. Well, no, but every three years they are refreshing their equipment. That could be gone and then you’ll have a big empty building.

For more coverage of this panel, check out earlier CapRE Insider Reports: