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Weighing Emerging Virginia Data Center Sub-Markets: Watch out for Border Wars as Surrounding Areas Learn from Ashburn

 
Jan 12, 2018
by Josh Anderson

ASHBURN, VA — At CapRE’s recent Mid-Atlantic Data Center Summit in Ashburn, we convened a panel of regional data center experts and insiders to discuss site selection in emerging Virginia sub-markets. This panel covered a range of evergreen topics that dominate any site-selection conversation. After kicking off with a rousing discussion about sustainability in edge markets, the topic changed to cover the importance of county incentives.

Kent Hill, Senior Manager for Economic Development at Dominion Virginia Power

Kent Hill, Senior Manager for Economic Development at Dominion Virginia Power offered his perspective. Hill thinks that data centers are no different than any other economic development project. “The more growth you want, the more incentives it takes to encourage major investment,” he explained. “I think that what localities have to do – and some are doing it – is to provide a cost advantage, or a disaster recovery advantage as far as back up, or from a tax incentive perspective, a low cost.”

“As an example, Richmond is what we would call a second-tier market. It’s developing, I think, quite nicely,” he continued. “QTS has data center space there. The county just reduced their tax rate for data centers from like $3 plus to I think 40 cents. That’s a major step in realizing that to attract even more edge, people on the edge, you’ve got to provide a strong cost advantage.”

So are other counties learning from the development in Ashburn? “Yes,” Hill replied. “We’ve had discussions with counties. They’ll come to us and say, look, we have a great site, we’ve got power, fiber etc. But we ask, what’s your tax rate? And they give us a glazed look. And we say, you’ve really got to make a change in your tax rate. If you’re going to encourage businesses to consider you over Ashburn, you’re got to provide some significant cost advantages. I think the light is eventually coming on, but it does have to come on.”

Steven Verp, Channel Executive at Digital Realty

Stephen Verp, JD and Channel Executive at Digital Realty then chimed in. “I think you’re also seeing border wars,” he pointed out. “North Carolina put in some tax incentives, and all of a sudden, South Carolina gave better incentives. So you’re seeing some competition regionally. Iowa was able to attract a large number of cloud suppliers through significant tax incentives. And I think that even, something you might call over the edge, Reno, Nevada, has incentives for the data center business and has attracted a significant number of customers, bringing them from California, with a better tax structure, fiber, power, etc.”

Allen Tucker, Managing Director for Jones Lang Salle, was a more bit cautionary, however, in thinking about the edge. “You still have to get people there, if you’re talking about a co-location environment,” he advised. “If they’re in a pure cloud or hyperscale environment, people don’t need to go there. Those are great locations for those people. That’s one thing I’d add about mid-Lancaster, it’s done really well on the eco-system and the access to people getting into the mid-Atlantic. It’s not just because of the infrastructure here. It’s the people who can get here.”

Tucker then added that one of the most critical things he would advise colleagues to keep an eye on is on the hardware side. “When you have equipment that falls, you’ll have to have certifications. It needs to be on the rack and on an SLA by a certain amount of time,” he remarked. “If it’s too far away from the edge, it doesn’t work. I’ve had many clients look at that down in Southern Virginia, and all they could get was silver. Silver is basically 4-6 hours, from the time they get a phone call about that equipment error. There are parts composed in Northern Virginia for all of the major hardware provider. And they can get it within one hour. That’s platinum service on an SLA on hardware, which is critical. So you’ve got to bring more expensive ecosystems to make the edge work, relative to co-location vs cloud.”

Be sure to check out our previous CapRE Insider Reports covering this discussion:

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