What's Behind the Virginia Data Center Boom?

Posted by Instor on Mar 9, 2018 9:00:00 AM

There continues to be almost daily headlines highlighting new data center construction and expansion in various markets – just look toward the sales of servers most recently, investments in real estate, and more mergers and acquisitions (M&As). Just like the 2018 Olympics, the data center market is ever more competitive trying to meet the insatiable demand for data warehousing One market in particular is Virginia where 70 percent of Internet traffic flows through and is home to many of the market leaders. We'll explore what's behind this boom.



Image: Pixabay


NoVa Region Leads Nation in Data Center Activity

There are six major data center markets according to Jones Lang LaSalle Incorporated (JLL) that continue to expand, including:


  • Northern Virginia
  • Chicago, Dallas
  • Phoenix
  • Seattle and Portland
  • Silicon Valley

Northern Virginia (NoVa) leads the markets by 26 percent with 268 MW of power consumption (2016). Not to be outdone in state competitiveness, Richmond is a hotbed of activity as well. Some have referred to the Commonwealth of Virginia as "Data Center Alley" (Washington Business Journal;) and “the Silicon Valley of the East” (Atlantic Magazine).   

Some of the most affluent cities in the U.S. are located in Virginia and the D.C. Metro area. According to a 2015 listing of median household incomes, Virginia has six out of the 20 richest municipalities of the nation:  

1 Loudoun County

2 Falls Church City

3 Fairfax County

8 Arlington County

15 Fairfax City

16 Prince William County

As long as demand continues to grow and gains can be made on economies of scale, there will continue to be a need to expand and construct data centers given strategic locations where infrastructure is key – highways, water, energy, space, sea ports, talent, logistics, air and mass transit, and tax incentives. To keep a pulse of where the growth is requires tracking construction projects which are in progress or planned in the near future – that’s where the action is.  According to Business Facilities’ 13th Annual Rankings Report published in August 2017, NoVa ranked number one for data center hubs.

There is no doubt that many markets are experiencing phenomenal growth but it would seem that Virginia is well established in maintaining the leadership role – we’ll take a look at some key drivers:

Economic Development

Virginia has a sales tax exemption on data center equipment and enabling software where qualifications include data center project involvement starting at $150 million in capital investment on or after January 1, 2009 – must include 50 new full-time jobs paying 150 percent times the average wage of the community in the locale. The job requirement drops to 25 if the data center is located in an enterprise zone where the unemployment rate for the preceding year is at least 150 percent of the average statewide unemployment rate.

Real Estate Investment trust (REIT)

NoVa in particular is well known as a hotbed of development activity across all verticals and industries alike and so it goes for data centers. Among some of the most important aspects for attracting business is the availability of land, energy, and local government cooperation but challenges remain which could impact the data center real estate market.

Virginia Tax Incentives

To stay very competitive, Virginia offers a broad array of incentives to financially assist incoming and existing businesses. Some have questioned why the state initially may forego reaping tax benefits but in the long term, the incentives pay greater dividends. This has translated into making Virginia’s 17 economic development incentive programs viable and accessible through the Virginia Economic Development Partnership (VEDP).  


Broadband Service in Virginia includes more than 122 service providers with the highest density of dark fiber in the world with low latency backbone connectivity and a “MAREA” – highest capacity undersea cross-Atlantic cable between Virginia Beach and Bilbao, Spain with an estimated 160 terabits-per-second connectivity. To maintain an edge for other markets, the state has established the Northern Virginia Technology Council – Data Center & Cloud Infrastructure Committee for promoting initiatives, policy, and infrastructure.


Tech Talent

The limited availability of experienced staff to fill many data center positions continues to be a real and stressful challenge for all markets. NoVa with its proximity to the DC and Baltimore metro areas offers many top-rated educational institutions and labor pool of engineers, scientists, cyber experts, and IT personnel in both public and private sectors.

According to a 2017 report by SelectUSA, Virginia has the highest national concentration of technical employees with 24,000 doctoral scientists and engineers employed in Virginia—one of the highest concentrations in the country.


Similarly to other infrastructures, there are hubs for electrical energy distribution which must support existing and new data center expansion. As recently as February, the U.S. electrical demand for the 48-contiguous states is approximately 423,678 megawatthours. Other forms of energy including wind, solar, and alternative fuels are available typically through power purchase agreements (PPAs) from many energy business within the state and depending on data center requirements in an effort to become more versatile in their offerings.