Make Way for Data Centers: Demolitions Highlight New Real Estate Calculus

May 24, 2023
The growth of the Internet economy is making data centers the most valuable development option in technology corridors, as seen in Amazon's plan to demolish nine office buildings in Northern Virginia to make way for new data centers.

This week's news that Amazon Web Services is demolishing nine buildings in Loudoun County to create a new cloud campus reflects the shifting economics of the digital economy. As more business moves online, the Internet will need more real estate.

And because data centers are a latency-sensitive business, proximity matters. This has begun changing the real estate math in leading technology corridors.

We first wrote about this phenomenon in DCF's "8 Trends" Forecast for 2020:

"As data tonnage reinforces the importance of proximity, we’ll see more 'knock-down' expansion projects, as developers buy adjacent properties and demolish existing buildings to create new data center campuses. In major cloud corridors, economics will make data centers the most valuable use for real estate."

Amazon's Plans in Sterling

That can clearly be seen in Amazon's plans to create more cloud capacity in Sterling, which is just east of Data Center Alley in Ashburn. AWS plans to demolish 9 buildings on Nokes Boulevard, Manekin Plaza and Ridgetop Circle in Sterling and replace them with four purpose -built data centers providing more than 900,000 square feet of data center space. The news was initially reported by the Washington Business Journal

The project will expand a growing cloud cluster surrounding the Dulles Town Center mall, which includes multiple data centers for CyrusOne, EdgeCore Digital Infrastructure and Cyxtera Technologies.

"AWS data centers bring job creation, investment, and educational programs that are benefitting communities across the United States," said an AWS spokesperson. "Since 2006, AWS has invested more than $35 billion in Virginia, and has supported thousands of highly skilled jobs and helped grow the GDP of the Commonwealth by billions of dollars in that time. We are proud of the ways we benefit our communities and look forward to helping the continued growth in Sterling."

The demolitions in Sterling are the latest examples of a trend that has its genesis in Santa Clara, where data center developers have for many years purchased properties with existing buildings and then knocked them down to create a data center campus. It's a strategy driven by the lack of vacant land in Santa Clara, which historically has offered competitive power pricing from the municipal utility, Silicon Valley Power. That’s why there’s 35 data centers are located in an 18-square mile municipality.  

It's an expensive strategy, as parcels with existing buildings in Santa Clara have sold for $7 million an acre or more. Those deals reflect the extraordinary value of data center real estate, which has had a transformative impact on real estate in Northern Virginia in recent years.

Shifting Real Estate Values

Demand for cloud capacity in Northern Virginia has pushed land values for data center parcels past $3 million an acre, up from about $500,00 as recently as 2017.

“Loudoun land is the most sought-after asset for this industry,” said Buddy Rizer, the Executive Director of Economic Development for Loudoun County.

There are a number of examples of projects in the Ashburn market where developers are demolishing existing buildings to create new data centers. The most high-profile one is the former AOL headquarters complex in Ashburn, which is being knocked down to make way for a data center campus for PowerHouse Data Centers, which is expected to be completed in late 2025. 

Then there's Data Center Alley itself, where several sites around the Equinix campus in Ashburn feature projects where a building has been demolished to clear the path for a new data center:

The trend has also popped up in Los Angeles, where Digital Realty has filed plans to demolish an existing parking garage to make way for a 13-spory data center. 

The flip side of these projects is that they come with a longer timeline, as developers must factor in the time and approvals needed to demolish the existing site. That's why knock-down developments tend to be part of the long-term planning process.

About the Author

Rich Miller

I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

Sponsored Recommendations

How Deep Does Electrical Conduit Need to Be Buried?

In industrial and commercial settings conduit burial depth can impact system performance, maintenance requirements, and overall project costs.

Understanding Fiberglass Conduit: A Comprehensive Guide

RTRC (Reinforced Thermosetting Resin Conduit) is an electrical conduit material commonly used by industrial engineers and contractors.

NECA Manual of Labor Rates Chart

See how Champion Fiberglass compares to PVC, GRC and PVC-coated steel in installation.

Electrical Conduit Cost Savings: A Must-Have Guide for Engineers & Contractors

To help identify cost savings that don’t cut corners on quality, Champion Fiberglass developed a free resource for engineers and contractors.

Courtesy of Stream Data Centers
Courtesy of Stream Data Centers

We Now Know More About Data Center Sustainability

Stuart Lawrence and Amanda Abell, Stream Data Centers’ sustainability leaders, revisit the article ‘What We (Don’t) Know About Data Center Sustainability’ and share an update ...

sdecoret/iStock.com, courtesy of ark data centers
Source: sdecoret/iStock.com, courtesy of ark data centers
Image generated by Midjourney, courtesy of EdgeConneX
Image generated by Midjourney, courtesy of EdgeConneX

White Papers

Dcf 3

Modernizing Efficiency and Time-to-Market

May 22, 2023
During an era of unprecedented digital infrastructure growth, learn how leaders embrace design modernization to impact time-to-market and sustainability.