Why is location important for data centers? A guide for new industry professionals.

03/12/2020

Data center location matters. In the upcoming blog, we'll unpack what companies must consider to select the right data center location.


This is part six of Data Center Fundamentals, datacenterHawk’s guide to getting up to speed on the data center market. If you’re a new participant in the industry, then this is for you. Instead of analyzing deep market trends, we’ll be covering the basics one step at a time. Be sure to subscribe to our monthly update to know when we release future topics.


Economics

Data centers are exponentially more expensive than other types of real estate, and the economic considerations have ramifications on all data center projects.

Power cost is one of the most important consideration factors when choosing a data center location and can vary widely. Areas like Quincy or Montreal are $.02-.03 per kilowatt/hour, while locations in the north east US are $.15-.16/kWh.

You can find markets with low power costs with Hawk Zoom.

Most states offer tax incentives tailored to data center development in order to attract end users. Larger data center investments often receive exemptions from sales tax on equipment or power consumption.

The market’s climate can impact cost as well. In cooler markets, you can use the cool air outside to cool servers instead of air conditioning units. This can help keep power consumption costs down. In warmer markets, summers can have higher power costs due to peaks in demand.

Colocation competition in the market can also shift costs. Heavy competition tends to lower the rental rates data center providers can charge. This is what we're seeing in the Dallas and Chicago data center markets right now.


Hazards

A data center’s location can also be influenced by geographic hazards.

Natural hazards like earthquakes or hurricanes are important to consider when performing a site evaluation. Markets like Phoenix and Chicago are relatively safe from natural hazards. But other markets like New Orleans have hazards that usually eliminate them from data center development.

Even with natural hazards, some markets are so strategic that providers build there anyways. They just build their facilities to be more resilient against the hazards of their region.

For example, Northern California, Los Angeles, and Seattle are areas of high seismic risk, but are also three areas of substantial data center investment. To account for natural hazards, data centers can be designed to absorb earthquake vibrations or withstand winds of 150+ mph.

Man made hazards also have an influence on a data center’s location within a market. The proximity to railroads, highways, airports, and nuclear power plants are often considered when selecting a data center location.

You can see which markets have high hazard risks with Hawk Zoom.

Strategy

A company’s internal strategy matters most when placing IT infrastructure in the proper region.

For example, Northern California is the second largest data center market because it’s strategic for some companies to have a portion of their IT infrastructure located in Silicon Valley despite the higher power costs and seismic risk.

Companies also prefer to be close to their data center infrastructure. If a company is headquartered in Houston, it might not make much sense to put their data center in Montreal. Especially if there's a service interruption. Larger companies might have good reason to distribute their infrastructure globally. But the added security might come at a convenience cost to smaller companies.

The infrastructure of a market will also influence how strategic it is. Dense fiber infrastructure, sub sea cables, and renewable energy can be attractive to companies.


Regulations

A market’s government can also carry a lot of weight when choosing a data center location. Laws and regulations can make it easier or harder to operate in different states or nations. For example, building a data center in California can take longer due to their regulations on water usage and emissions.

For companies that operate on an international scale, data privacy is a major concern. The Patriot Act and other privacy focused legislation and concerns have pushed some demand away from the US and into Canada. Particularly for international companies that need data centers in North America.

Other government movements like green-energy initiatives or Brexit can have a major impact on a company’s data center strategy.

Just because data center can be built anywhere doesn’t mean they are. The largest data center markets are their size for multiple reasons. Their costs, risks, strategic benefits, and regulations all make sense for companies to invest in the region.


This was part six of Data Center Fundamentals, datacenterHawk’s guide to getting up to speed on the data center market. Be sure to subscribe to our monthly update to know when we release future topics.

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