Which Cities Are the Least Expensive for Data Centers?

ATLANTA—Some of the least expensive markets to operate a 5-megawatt (MW) enterprise data center over a 10-year period are right here in the Southeast. The reasons are clear: plenty of tax incentives for enterprise data centers and the region's low power and land costs.

That's according to a new report from CBRE Group. The study modeled the cost of constructing, commissioning, and operating a 5 MW data center for 10 years across 30 US markets. The report categorizes markets into three cost bands—low, moderate and high—according to analysis of tax incentives, power, construction, land and labor and other cost components.

"Atlanta is a low-cost market across the board, coming in below the national average in almost all areas that impact data centers," says John Ferguson, division president for CBRE in the Southeast. "State and local incentives, coupled with Atlanta's organic tech growth and tech momentum, help to make the city a competitive option for enterprise data centers."

Data centers are capital intensive and generate significant sales and property tax revenues for state and local jurisdictions. Increasingly, CBRE reports, markets that seek to attract data centers are offering significant tax incentives to help reduce the total cost of operations for data centers.

Atlanta and Charlotte are two of the most competitive markets among the 30 enterprise markets. Atlanta's net tax burden accounting sits at 3.8% of the total project cost and Charlotte's burden is at 6.7%. That's below the 8.7% average total project cost across the 30 markets.

"The Charlotte region remains attractive to data center users," Ben Rojahan, vice president of CBRE Data Center Solutions, tells GlobeSt.com. "The new tax incentives will help us maintain our attractiveness to the enterprise users and hopefully give a boost to the colocation market. Having Duke Energy providing low cost and increasingly renewable power helps along with our excellent quality of life, climate and accessibility, which are all important to data centers."

Of course, the most expensive power rates were in Silicon Valley, Boston, and Southern California. Atlanta hovered right below the 13.2% average among the 30 markets at 12.9%, and Charlotte came in right above average at 13.3%.

Meanwhile, Charlotte, along with Tulsa, San Antonio, Jacksonville and Dallas, was among the least expensive markets in which to build a Tier III facility. Although at 33.4%, its facility construction costs as a share of the total project cost were below the 35% average share across the 30 markets in the study. Atlanta proved to be above average, at 36.9%.

"The ever-increasing need for data exchange, storage and security is broadening demand for data centers in the U.S., but one solution does not fit all," says Pat Lynch, managing director, Data Center Solutions, CBRE. "Capital and operating costs vary considerably by market, and non-monetary factors such as proximity to a headquarters location, fiber density and environmental and other risk factors can also drive enterprise site selection decisions."

Atlanta's land acquisition costs as a share of the total project cost were just on the low end of the 30 markets in the study, at 1.3%, and Charlotte proved to be an even more affordable market with 0.7 percent of the total project consisting of land cost.   With a need for critical environment engineers that provide round-the-clock coverage, labor costs average $13.2 million over a 10 year-period and account for an average of 4.9% of the total project cost. Market-rate labor costs were above-average in Atlanta and Charlotte, at 5.2% and 5.3%, respectively.