Growing Pains: Loudoun County Debates the Future of its Data Centers

We continue our series on the Northern Virginia data center market. In Part one, we looked at the new entrants in the region. Today: the challenges of growth, and emerging controversies surrounding data center development.

Loudoun County appreciates data centers. But it doesn’t want them everywhere, and local officials say they will be more discriminating about allowing data centers to expand into residential neighborhoods and retail corridors.

County officials are wrestling with how to manage the rapid growth of cloud infrastructure, and balance the benefits and challenges of its marquee industry. Loudoun County has more data centers than anyplace on earth, with 26 million square feet of existing space, and another 8 million square feet under development.

In recent meetings, local officials have vigorously debated the industry’s impact on land values, residential communities, tax rates, and and the county budget. Much of the discussion has focused on data centers’ impact on residential housing. In February, the Loudoun Board of Supervisors has approved three new data centers, but rejected one proposed rezoning for a data center project.

With a full pipeline of more data center projects, the board is also working with county economic developers to define where data centers will be built in the future. Thus far, there’s more agreement about where they should be disallowed. A proposal for a planned data center corridor in a rural section in the Southeast Corner of Loudoun County has received a chilly reception from the supervisors.

In our DCF 2022 forecast, one of our predictions was that data centers will confront growing community resistance. This trend has emerged in a big way in Northern Virginia over the last month.

The debates in Loudoun County merit the full attention of the data center industry, as they foreshadow future controversies in other data center destinations. Loudoun County has historically been friendly to data center development, with a streamlined path to market for most developers. The county supervisors probably have more experience reviewing data center projects than any legislative body.

The lessons of the Loudoun debate will likely resonate in other major markets as they assess future data center development. Singapore, Amsterdam, Dublin and Frankfurt are all seeking to strike a balance between data center growth and constraints on land, power and water.

Loudoun Land: ‘The Most Sought-After Asset’

Data centers are important to the Loudoun County economy. The industry is expected to generate $586 million in revenue for the county in 2022, creating $11.50 in local tax revenue for every $1 of services provided, according to the Loudoun County Department of Economic Development.

“We are the number one market in the number one growth industry in the country,” said Buddy Rizer, the Executive Director of Economic Development. “It’s the most sought-after asset class in communities across the country.

“Today Northern Virginia represents by far the largest concentration of data centers in the world,” Rizer added. “If you put together the next six data center markets in the country, it still wouldn’t match Northern Virginia.”

That demand has pushed land values for data center parcels past $3 million an acre, up from about $500,00 as recently as 2017. “Loudoun land is the most sought-after asset for this industry,” said Rizer.

“We are the number one market in the number one growth industry in the country.”
Buddy Rizer, Loudoun County Economic Develeopment

The county’s zoning has defined several “place types” where data centers are a by-right development and eligible for fast-track approvals without the need for any hearings with local boards.

But as development exhausts the supply of by-right parcels, more developers are buying land in areas zoned for other uses, and then seeking rezoning. This brings data centers into closer proximity with residential developments, raising tensions with future neighbors about data centers’ impact on the landscape and on property values.

Can Neighborhoods and Data Centers Mix?

These issues came to a head as the supervisors debated JK Technology Park 2, one of three data center projects being pursued by developer Chuck Kuhn in the emerging Dulles Cloud Corridor along Route 50. The JK Technology Park 2 project is across the street from a residential neighborhood bordered by Hiddenwood Lane, and some homeowners opposed the project, saying it would impact their views and property values.

Kuhn’s JK Land Holdings sought a rezoning and special exception to permit up to 869,000 square feet of data centers on the site. The developer held a series of meetings with residents in the past year to address their concerns, which included the height of the buildings, proximity to roads, and adequate landscaping. JK Land worked closely with Loudoun planners and supervisors to address their concerns. The county planning department opposed the project, saying it didn’t align with the county’s comprehensive development plan and its desire for transitional areas between data centers and residences.

After a year of discussions, JK Technology Park 2 was approved by the supervisors on a 5-4 vote on Feb. 1, after a group of residents dropped their opposition to the project, apparently opting to try and sell their homes.

“That land is already on the market,” said supervisor Tony Buffington, who represents the Blue Ridge District where the project is located.

Supervisor Matthew Letourneau (Dulles District) voted against the data center, citing the impact on nearby homeowners. “I really think this board is letting them down,” said Letourneau.

“I am very pro data centers and thankful for what they brought to this county,” Letourneau continued. “But we need to be selective about where we’re putting them to avoid residential impact. If we want to get away from the checkerboard pattern of data centers mixed with residential, all jumbled together, then at some point we have to stop doing it. I know that’s difficult, but we have to stand up for the residents.”

“If we want to get away from the checkerboard pattern of data centers mixed with residential, all jumbled together, then at some point we have to stop doing it. ”
Loudoun Supervisor Matthew Letourneau

Supervisor Koran Saines (Sterling District) echoed those concerns.

“We need to think about where data centers should go and not go, and we need to start making those decisions now,” said Saines.

Land Values and the Data Center Premium

Data centers’ impact on property values is complicated. While some homeowners believe property values will decline if a data center is built across the street, others see opportunity in the industry’s willingness to bid up land prices, according to Supervisor Kristen Umstattd of the Leesburg District.

“I have had communities that are not next to a data center come to me and say, ‘Can you please support a re-planning of our area for data centers, so we can sell for a lot of money and secure our retirement?'” said Umstattd.

That tension has also been seen in Prince William County, where a group of homeowners along Pageland Road have banded together to pitch the Prince William Digital Gateway, seeking to change the county’s Rural Exclusion Zone to allow for a development that could support up to 27 million square feet of data centers and $30 billion in investment. Other community groups oppose the proposal, and although this appears to be a case of clashing visions among neighbors, these groups are holding protests at local data centers.

At the Feb. 1 Loudoun supervisors’ meeting. Several supervisors said rising land values in Loudoun are problematic.

“Developers of affordable housing won’t be able to afford the land because it is so expensive,” said Supervisor Sylvia Glass of the Broad Run District. “The owners of data centers have the funds to purchase the land. They do give us revenue, but I believe we need to have a balance in our county regarding where we have data centers and where we have our houses.”

“The only way to stabilize our land values, which is important for affordable housing, is if we say no to rezoning for data centers and special exceptions for data centers,” said Supervisor Juli Briskman (Algonkian District). “I am not comfortable with continuing down this road. Smart financial management requires that we diversify our revenue and requires us to think about the impact of these data centers on our land value in the county”

‘There is No White Knight’

Umstattd said penalizing the data center industry is not the right solution.

“If we want affordable housing, we cannot pay for that on the backs of our resident taxpayers,” she said. “If we want to hold taxes down on our residents, we need an income strategy.

“Every year (data centers) bring in more taxes to the county, which we use for transportation projects, affordable housing, social services for mental health, for child protective services, for parks – we use it across the board,” said Umstattd. “Without the data center industry, there is no white knight hiding at the side of the stage, ready to come out and save the economy if data centers start leaving. We have to be a welcoming community for the primary source of revenue.”

Supervisor Caleb Kershner (Catoctin District) shared a similar perspective.

“Data centers have made this county rich,” said Kershner. “And quite frankly, there are huge tracts of land in Frederick (Maryland) and Prince William that are being looked at right now, which are poised to take a significant portion of this industry away from us. Are we done with data centers now? I don’t think we should be.”

“Data centers have made this county rich. Are we done with data centers now? I don’t think we should be.”
Supervisor Caleb Kershner

Saines expressed skepticism that the industry would abandon Loudoun, noting that data center operators have been undeterred by higher land prices and rezoning.

“To say we would scare them off is not accurate,” said Saines. “Every meeting we have a data center application and we are voting to approve the majority of them.”

Retail or Data Centers?

But not all of them. Immediately after approving JK Technology Park 2, the Loudoun supervisors voted 5-3-1 to reject a zoning change for a proposed data center project on Thayer Road in Sterling. Developer Nokes Plaza LLC sought a ZRTD, an update that brings a property’s zoning in line with 1993 ordinances that allow higher floor-to-area ratios, a process often used to prepare properties for data center development. These are usually not controversial, as all 95 previous ZRTD applications had been approved, according to the economic development team.

County zoning staff supported the change, but the Planning Commission sent the item to the supervisors with a unanimous recommendation that the ZRTD for Thayer Road be denied, saying it was inconsistent with the area, which is predominantly retail but also includes several large data centers. The supervisors opted to follow the Planning Commission’s recommendation.

“If this site ever is to be developed, it makes sense to do it as retail,” said Saines. “It’s a prime location for retail given its proximity to the mall and Route 28.”

“I did not know how I was going to vote until I saw the site,” said board chair Phyllis Randall. “It really is a site that is not appropriate for a data center. It is smack in the middle of a high retail area, and I just think this is the wrong data center for the wrong location.”

The developer still has other options to develop the site, Buffington noted, which could lead to surprises.

“I’m worried that we’re making a mistake here,” he said. “If we deny this application, we won’t get a data center with proffers where we know exactly what we’re getting. What we could get instead is a by-right 100-foot-tall distribution center,” similar to ones for Amazon.

With Data Centers, the Details Matter

The data center debates were part of a 10-hour supervisors meeting. On several occasions, board members noted the tensions in managing data center growth, with votes often hinging on specifics of an application and location, and not larger attitudes about data centers and cloud computing.

“There’s only a few data centers I fought against, and those are the ones next to residential homes,” said Letourneau. “I really do wish that we didn’t make every single application a referendum on the entire industry. If you vote against a particular data center, it doesn’t mean you’re against the industry. And if you vote for it, it doesn’t mean they should be everywhere.”

Kershner voted to support the JK Technology Park 2 application, but understands why it was contentious.

“There must be a balance,” he said. “Is this on the edge? I don’t disagree. Those who are bringing forth rezonings for data centers have to take that into account as words of warning.”

Next: Many debates focus on where data centers should not go. How do communities decide where they should be built?