As you know, Northern Virginia is now referred to as "data center alley." It has, by far, the largest agglomeration of data centers in the world. The latest figures are somewhere around 200 completed facilities and some 49 million square feet, with a lot more in the pipeline.

Here's the global top 10 list via Bloomberg:

And here's a map of existing (blue) and proposed (purple) data centers via Loudoun County, Virginia:

This has been an economic boon for Virginia. It's estimated that the data center industry contributes up to 74,000 jobs and $9.1 billion in GDP to the state each year. But along with these benefits come some trade-offs, one of which has to do with the region's built environment.

Here are two zoom-ins of an area to the west of Dulles International Airport:

These maps raise a question that is only going to become more important as time goes on: What's the best way to insert large insular boxes into the fabric of a city or suburb? Of course, in some ways, this is not a new phenomenon. The suburbs are no stranger to this kind of built form.

But it's unique in that these boxes are not meant to be experienced in real life. They're a physical manifestation of our online activities, juxtaposed against our offline lives. It's two different worlds colliding. And already, it may be more appropriate to ask our question in the opposite direction: What's the best way to plan a city or suburb around data centers?

We've spoken before about how much electricity is going to be demanded by data centers in the future. According to this study, data center energy usage is expected to represent somewhere between 6.7-12% of total electricity consumption in the US by 2028. And according to McKinsey, demand for data centers is going to at least 4x by the end of this decade. So the consensus is that we are going to need more, not less, data centers in the foreseeable future.

But if data centers represent the physical infrastructure needed for our digital activities, it's both interesting and valuable to think about where this stuff wants to go, especially since tech is, in some ways, a decentralizing force for cities. Interestingly enough, they exhibit the same economies of agglomeration as many other urban activities in that they want to be near density and other data centers. Maybe even more so.

Here's an excerpt from a Harvard Business School report (2022) called "Where the Cloud Rests: The Location Strategies of Data Centers."

The study finds a pervasive urban bias in the location of third-party data centers. For example, we find that all large metropolitan areas with over 700,000 population have at least one supplier. Less dense areas may or may not have any. Moreover, local entry rises with the presence of local information industries and intensive data users, such as finance, insurance, and real estate. Because less supply locates in the areas with lower density, a high fraction of buyers in small and medium-sized locations must get their services from non-local suppliers—likely located in the closest major city. Relatedly, we also find supply of more specialty services in denser and more competitive locations. We interpret all these patterns as the result of tension between economies of scale and user preference for proximity.

And here's a quote from LA-based Rising Realty Partners:

Once a data center hub is entrenched, it tends to create its own gravitational pull. Data center tenants want to be near other data center tenants. And the main hubs also boast high levels of connectivity. The calculus is straightforward: It’s far easier to run a fiber optic cable across the street or across town than to run a connection across the state or country.

This is what is happening in Northern Virginia with "Data Center Alley" and what is now now referred to as the world's largest data center hub. As of July 2024, Loudoun County, VA (which is located just 34 miles from Washington, DC) had 43 million square feet of existing data centers and ~47 million more square feet in the pipeline. This represents an increase of ~60 million square feet compared to where the area was as recently as 2022.

Overall, there are only so many "primary" data center markets in the US. CBRE lists 8. This makes it a relatively concentrated real estate asset class in terms of geography.

Cover photo by Claudio Schwarz on Unsplash