Last week we launched a special report series on the Northern Virginia data center market. This week we’ll look at the background and history of the NoVa data center market, as well as some key market updates.
Why is Ashburn, which lies about 30 miles west of Washington in Loudoun County, such an important site? It was home to MAE-East, the Internet’s first major interconnection point. As a startup, Equinix built its first data center in Ashburn in 1998, providing a carrier-neutral facility where companies’ networks could tap into Internet backbones.
The Equinix campus quickly become the web’s busiest meeting place, creating a powerful network effect in which each new connection adds to the value of its digital ecosystem. As the primary Internet on-ramp, the Equinix campus in Ashburn has become the geographic focus of activity in NoVa, with new data center projects springing up on adjacent land.
Proximity to Equinix continues to shape the market for data center real estate in Loudoun County. In recent years, data center developers and service providers have bought up most of the parcels of open land near the main Equinix campus, providing runway for future capacity in this high-growth market.
Loudoun County has been recognized for its support of the data center industry, coordinating available land and working closely with applicants on zoning and streamlining approvals and fees. Prince William County has developed similar services for a 10,000- acre data center opportunity zone.
Data center projects have been welcomed in NoVa due to their positive impact on the economy, which was documented in a 2021 study from Mangum Economics.
Highlights of the research’s findings include:
- In 2021, the data center industry in Virginia provided approximately 5,550 operational jobs and almost 10,000 construction and manufacturing jobs.
- For every job inside a Virginia data center, an additional 4.1 additional jobs that are supported in the rest of the Virginia economy, with 45,460 supported jobs in 2021.
- Data centers generate significant tax revenue for local governments. Data centers were directly and indirectly responsible for generating $174 million in state revenue and $1 billion local tax revenue in Virginia.
- Without data centers and the way in which Virginia subsidizes local education budgets, the Commonwealth would have had to reallocate $90.5 million in state education funding away from other Virginia localities to provide $73 million in additional funding to Loudoun County, and $17.5 million to Prince William County.
- Virginia’s data center tax incentive programs continue to attract investors and demonstrate that its business climate is welcoming to the high-tech industry.
Data centers continue to be a major driver of investment in Virginia. According to the Virginia Economic Development Partnership (VEDP), in 2021, 62 percent ($6.8 billion) of all the new investment was generated from new and expanding data centers. In 2021, the data center industry supported over 45,000 jobs, producing $3.6 billion in labor income, and created $15.3 billion in total economic output across the Commonwealth.NoVa has the largest data center market in the world with the region’s total data center capacity more than doubling from 2018 to 2021. As of last year, the data center inventory in NoVa exceeded that of the next five largest markets in total (Chicago, Dallas-Fort Worth, Silicon Valley, New York/Tri-State Area and Phoenix), with an annual compound rate of growth of 25 percent from 2014-2021.
Development in Loudoun County Expands to Razing Sites
The explosive demand witnessed in NoVa is shifting the market dynamic and requiring some developers to take a new approach to development. Between 2018-2020, most of the 20+ acre sites in Ashburn and Sterling were acquired by new market entrants and existing providers land banking to secure a location for future growth. However, data center demand specifically in Ashburn and Sterling remains constant and data center users continue to want to locate there. As a result, most site acquisitions toward the end of 2021 were for parcels less than 10 acres, providing room for only two facilities at the most. To account for this, data centers are designed to span multiple stories and offer higher power density.
Some land purchases included existing buildings on the property, which will be torn down to construct new data centers. While demolition to construct multi-story data centers on small parcels is a common strategy in Northern California, it’s quickly becoming a necessary approach for development in Loudoun County. Examples of this approach include projects by American Real Estate Partners, which will redevelop the former AOL headquarters as a data center campus, Cologix (which will knock down a former church site), and Digital Realty.
The Largest Concentration of Data Centers in the World
One advantage for NoVa’s technology sector when it comes to scalable, impactful work is the region’s proximity to Washington DC, the epicenter of public and private sector collaboration. Annually, more federal procurement awards go to companies in Fairfax County — NoVa’s largest county and the business heart of the national capital region— than any other county or city in the U.S.
As the world’s largest buyer of goods and services, the U.S. Federal Government and its various agencies provide a robust and steady demand for tech systems and products (which is also one of the reasons why NoVa’s economy remains exceptionally stable). NoVa’s position in the backyard of the nation’s capital is also what draws many international firms. Fairfax County alone is home to over 430 foreign companies representing 49 countries, and nearly one in three residents were born outside of the U.S.
There are the giants of defense and aerospace headquartered in NoVa, like General Dynamics and Northrop Grumman, which recently won a $187 million NASA contract to design living quarters for Lunar Gateway space station, a crucial step in establishing sustainable human presence on the moon.
The NoVa startup community has a strong track record of making an impact too, with companies like Aireon, a tech startup providing the first global air traffic surveillance system to the aviation industry; and HawkEye 360, a radio frequency analytics firm looking to change the world with its satellites that deliver precise mapping of radio frequency emissions, a brand-new data layer never previously available commercially.
Download the full report, Northern Virginia Data Center Market, courtesy of Digital Realty, to learn more about this competitive data center market. In our next article, we’ll discuss trends in supply and demand in NoVa. Catch up on the previous article here.