Location Drives 60% of Total Cost
The location of a data centre is the single most consequential decision in the development or leasing process. It determines power costs, latency, regulatory exposure, natural disaster risk, and ultimately the commercial viability of the facility. With hyperscaler capex exceeding $280 billion for 2026-2027 and community opposition blocking $156 billion in projects, the margin for error in site selection has narrowed dramatically.
This guide walks through the six critical factors that determine whether a location works for data centre deployment.
1. Power Infrastructure
Power is the primary constraint in data centre site selection. A building without adequate electrical infrastructure is not a data centre candidate, regardless of how attractive the real estate might be.
What to evaluate:
- -Substation proximity: Ideally within 1-3 miles of a high-voltage substation (138kV+). Substations beyond 5 miles typically require expensive dedicated transmission line construction.
- -Transmission line access: Properties near existing 230kV or 500kV transmission corridors have a significant advantage. These lines carry the volume of power that data centres require.
- -Utility capacity: Contact the local utility to understand available capacity at the nearest substation. Many substations in high-demand markets are already fully allocated.
- -Redundancy: Dual utility feeds from separate substations provide the redundancy that Tier III and IV facilities require. This is standard in primary markets but scarce in secondary locations.
- -Interconnection timeline: Utility interconnection queues in markets like Northern Virginia and Phoenix can extend 3-5 years. Factor this into your development timeline.
**Power cost benchmarks (2026):** - Northern Virginia: $0.065/kWh - Dallas-Fort Worth: $0.058/kWh - Phoenix: $0.072/kWh - Silicon Valley: $0.145/kWh - London: $0.180/kWh - Singapore: $0.150/kWh
2. Connectivity
Data centres exist to connect. The value of a facility is directly proportional to the density of network interconnection available at or near the site.
What to evaluate:
- -Internet Exchange Points (IXPs): Proximity to carrier-neutral IXPs enables peering and reduces transit costs. Markets like Ashburn, Frankfurt, and Amsterdam have dense IXP ecosystems.
- -Fibre routes: Properties adjacent to lit fibre routes from multiple carriers can be connected quickly and affordably. Those requiring new fibre builds face 6-18 month construction timelines.
- -Carrier diversity: A facility served by a single carrier is a single point of failure. Primary markets typically have 30-80+ network providers; secondary markets may have fewer than 10.
- -Latency requirements: For financial services and real-time applications, every millisecond of latency matters. Map the round-trip time to your end users or cloud regions.
3. Natural Disaster Risk
Insurance costs, business continuity, and tenant confidence all depend on the natural hazard profile of the location.
What to evaluate:
- -Flood risk: Check the FEMA flood zone designation. Zone X (minimal risk) is ideal. Zones A and V carry significant insurance premiums and tenant resistance. Even Zone B (moderate risk) can be problematic for institutional tenants.
- -Seismic hazard: The USGS provides Peak Ground Acceleration (PGA) data at any US location. PGA below 0.1g is considered low risk. California locations routinely exceed 0.5g, requiring significantly more structural investment.
- -Severe weather: Tornado alleys, hurricane zones, and wildfire-prone areas all add operational risk. This doesn't necessarily disqualify a location, but it increases construction costs and insurance.
4. Market Maturity
Established data centre markets have ecosystems - skilled labour, experienced contractors, established supply chains, and tenant demand. Entering a nascent market requires building that ecosystem from scratch.
Market tiers:
- -Established (500+ MW): Northern Virginia, Dallas, Phoenix, Chicago, London, Frankfurt, Singapore, Tokyo. These markets have deep tenant demand, multiple operators, and proven supply chains.
- -Emerging (100-500 MW): Atlanta, Portland, Salt Lake City, Dublin, Amsterdam. Growing rapidly with increasing operator interest and tenant demand.
- -Nascent (<100 MW): Markets with limited current capacity but strategic potential. Higher risk, potentially higher returns.
5. Regulatory Environment
The regulatory landscape for data centres has changed fundamentally in the past three years. Community opposition, moratoriums, and environmental restrictions are now primary site selection variables.
What to evaluate:
- -Zoning: Confirm the property is zoned for data centre use. Many jurisdictions require special use permits or conditional use approval.
- -Permitting timeline: Average permit timelines range from 6 months (Texas) to 24+ months (some California jurisdictions).
- -Community sentiment: Research local attitudes toward data centre development. Some communities have enacted moratoriums after perceived negative impacts on power grids, water supply, or aesthetics.
- -Tax incentives: Multiple states offer sales tax exemptions on equipment, property tax abatements, or investment tax credits. Virginia, Texas, and Ohio have particularly attractive incentive programmes.
6. Cost Structure
The total cost of occupancy goes far beyond the headline lease rate. Model the complete cost stack before committing to a location.
Cost components:
- -Power: Typically 40-60% of operating cost. The difference between $0.06/kWh and $0.15/kWh is transformative at scale.
- -Real estate: Construction costs average $11.3M/MW nationally, but range from $8M/MW in low-cost markets to $18M/MW in constrained urban locations.
- -Labour: Skilled data centre technicians, electricians, and mechanical engineers. Labour cost indices vary by 40% across US markets.
- -Connectivity: Cross-connects, fibre loops, and transit costs. Carrier-neutral facilities typically offer more competitive pricing.
- -Taxes: Property taxes, sales taxes on equipment, and utility taxes. The variance across jurisdictions can represent millions of dollars annually.
How Datacentres.com Can Help
Our free Viability Score tool provides an instant directional assessment of any US address across power, connectivity, risk, and market context. For detailed analysis, our advisory team offers bespoke site selection services covering all six factors outlined in this guide.
Use the Score Tool for an instant assessment, or contact our advisory team for personalised guidance.