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Why is Data Center Location Important? - Data Center Fundamentals

By Mike Netzer · 2/1/2021

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Below are some of the main factors that are important when looking at data center locations:

This is an episode of HawkPodcast, datacenterHawk’s viewpoints on the data center industry. If you enjoyed this episode, you can check them all out on our blog. If you’d like to know when we release future episodes, you can subscribe here. You can also click here if you want to read our 4Q 2020 data center overview for North America and Europe.


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 factors when choosing a data center location as it can constitute up to 20% of the total cost of colocation. The cost of power can vary widely from region to region. Areas like Quincy or Montreal are $0.02-0.03 per kilowatt-hour, while locations in the Northeast US can be up to $0.15-0.16/kWh.

For larger colocation providers and hyperscale companies who are building entire campuses, land availability and cost needs to be accounted for. In markets like Dallas and Phoenix, there is virtually unlimited land in every direction. In markets like Northern California, Northern Virginia, or Chicago, natural barriers like bodies of water or heightened demand make land acquisition more difficult.

The market’s climate can impact the 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.

Most states offer tax incentives tailored to data center development in order to attract end-users. Larger data center investments can be eligible for tax credits based on the total development investment or receive exemptions from sales tax on equipment.

A market’s competitive landscape and demand profile also impact lease rates. Heavy competition and/or an oversupply in a market may lower the amount data center providers can charge. This is what we're seeing in the Dallas and Chicago data center markets right now. Conversely, a smaller number of operators or lower supply in a market can enable providers to charge a higher rate.


A data center’s location can also be influenced by geographical 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. New Orleans and Orlando are examples of markets that have historically deterred data center development.

Even with natural hazards, some markets are so strategic that providers build there anyway. In order to do so, they may need to make a larger investment to beef up the building’s physical infrastructure.

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.


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 in North America because it is 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 diversification might come at a convenience cost to smaller companies.

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


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 have pushed demand away from the US into Canada. Other government movements like green-energy initiatives, Brexit, or GDPR can have a major impact on a company’s data center strategy.

Just because a 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 align for companies to invest in the region.

Be sure to check out our HawkZoom tool to compare all of these factors and more when it comes to data center locations. Get a live demo of it by requesting one here.

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