Data Centers Still Critical in 2022 for Infrastructure, Environmental and Policy Developments

February 22, 2022

As 2022 unfolds, data centers continue to be a critical component of forward progress for tech-related cloud services, 5G, construction, infrastructure, real estate, energy and other industries, while also trying to incorporate the environmental, social and governance laws and policies that impact many industries.

A recently developed report from the 2022 Cushman & Wakefield’s Global Data Center Market Comparison concludes that the United States is a leader in the data center markets, with significant presence and capabilities in regions such as Northern Virginia, Silicon Valley, Chicago, Atlanta and Dallas, to name a few. Northern Virginia is the largest operating base of data centers, a geographic market that likely will continue to be seen as the global leader in this industry, but not without competition from other U.S. and international markets.

The continued development of the data centers industry is closely connected to policy and legal advancements and the opportunities that are accelerating this industry forward. Data centers will continue to play a critical role in business operations as the world continues its reliance on technology, which presents legal, governance and business opportunities and challenges in the year ahead.

Industrial Construction, Investments and Real Estate Projects

Industrial real estate developments, construction projects and infrastructure investments will continue to soar as data centers develop not only in Northern Virginia, but across the United States and around the globe. According to the 2022 Cushman & Wakefield’s Global Data Center Market Comparison, construction totals continue to grow globally, with some of the largest data center developments requiring larger builds, with 100-acre campuses and construction projects. Additionally, private equity real estate-related investments and REIT transactions are providing additional sources of capital for an industry that is increasing its value as the world becomes reliant on technology and digital internet access.

Economic and Policy Developments

The operator-side and client-side organizations that utilize data centers are positioned to have a significant and strategic investment following the $1 trillion infrastructure bill that was passed in 2021. The legislation provides for over $60 billion in enhancements focused on delivering trusted internet access, capabilities, broadband services, and ultimately, a digital transformation of the national internet infrastructure, of which data centers are a critical component. Data centers in Northern Virginia, for example, will continue to be a critical base for the data center industry, claiming the name “Data Center Alley” for its close proximity to the U.S. capital and its proximity to transatlantic cables anchored in Virginia Beach, Virginia.

Most recently, Virginia introduced a bill that would reduce the new job creation requirement from 50 to 25 to qualify for the retail sales and use tax exemption for data center operators. It would also clarify that the reduced capital investment requirement of $70 million for data center locations that qualify for the reduced jobs requirement is based on such location being in a “distressed locality.”

Additionally for 2022, Virginia is proposing a bill providing that if a locality taxes certain fixtures located in a data center as real property, the fixtures would be valued based on depreciated reproduction or replacement cost. These fixtures would include generators, radiators, exhaust fans and fuel storage tanks; electrical substations, power distribution equipment, cogeneration equipment and batteries; chillers, computer room air conditioners and cooling towers; heating, ventilating and air conditioning systems; water storage tanks, water pumps and piping; monitoring systems; and transmission and distribution equipment. Computer equipment and peripherals would not be considered fixtures. Under current law, localities may tax the listed items as either real or personal property.

The overall policy implementation and funding for data center investments is geared toward providing economic motivation for industry organizations to continue their data center investments in Virginia as well as providing resources to narrow the digital divide. These new proposals would ultimately provide access for communities in need of reliable internet infrastructure, not only in Virginia, but on a national and international basis.

Environmental, Social and Governance (ESG) Advancements

Environmental matters, particularly climate change, continue to anchor the ESG movement, a legal and business component that many organizations are tackling in 2022, including the operator-side and client-side organizations that need data centers for their business operations. Environmental considerations are directly connected with the data center industry as organizations look to reduce their carbon footprint by way of colocation centers and cloud-based technology advancements. Additionally, organizations are looking to upgrade power sources and power grids. Resilient power grids that can deliver green energy and renewable power are critically important when it comes to the development of new data centers, through an ESG lens.

McGuireWoods’ Approach to the Markets

McGuireWoods’ data centers team draws on years of hands-on experience with construction, infrastructure, real estate and policy programs across local, state and federal levels. Entering 2022, the team has a significant presence in Northern Virginia and in regions across the United States in which data centers have a growing footprint. The team’s experience reflects the complicated nature of many data center projects, including ESG, real estate, tax, land use, permitting, public finance and corporate transactions. Government consultant team members additionally provide a collaborative legal and policy approach to delivering integrated needs to data center clients. The team’s collective knowledge, experience and strategic insight help clients pursue their business objectives and capitalize on data centers-related opportunities across the country.