Incentives Push Northern Virginia Data Center Growth

We continue our series of stories on the leading geographic markets for data center space. Data Center Frontier is partnering with DatacenterHawk to provide in-depth market reports on each city we profile. Read on for an in-depth look at how tax incentives for qualified data center facilities are helping to drive data center construction and growth in Northern Virginia.

Economic Development and Incentives

Legislation making qualified data center facilities exempt from Virginia’s sales and use taxes went into effect in 2009. To qualify, data center providers must spend at least $150 million and create between 25–50 new jobs in the area. Those tax breaks have since been extended through 2035, providing long-term visibility into operating costs for data center operators. The incentives were also expanded to enable aggregation of the requirements across multiple data centers and its tenants. This reduced the capital investment needed to receive the tax abatement and encouraging service providers to build multiple data centers.

Data Center Frontier Special Report: The Northern Virginia Data Center Market. Download it now.

According to the Associated Press, the Commonwealth of Virginia waived an estimated $48 million in state and local sales tax revenue for data centers in 2014 alone. These tax incentives, combined with Virginia’s business-friendly environment, attracts data center investment that would otherwise go to the District of Columbia and Maryland.

Virginia has seen a strong return on its investment in data center incentives, according to an economic impact study by Mangum Economics, a Richmondbased research firm. For every dollar in county expenditures, the data center sector provided approximately $9.50 in tax revenue to Loudoun County, and approximately $4.30 in tax revenue to Prince William County, the study concluded.

The data center industry employed 12,533 workers in Virginia in 2014, with an average annual income of $105,942 per year. The industry “is a fast growing sector, that pays high wages, and those wages are rising at a rate that far outstrips the norm for Virginia’s economy,” Mangum noted.

Connectivity

An astounding 70 percent of the world’s Internet traffic flows through Northern Virginia. The region’s proximity to every federal government agency’s headquarters obviously plays a role in that worldclass network connectivity. As a result, the area’s robust technology and financial businesses grew up around that connectivity. Hundreds of thousands of fiber miles laid by dozens of providers enable robust carrier-neutral broadband connectivity to many of the region’s data centers.

Power

To meet the voracious demand for data centers, the entire Northern Virginia area has experienced uncommonly-rapid growth of new electricity providers. According to published reports, Virginia has the lowest commercial electricity rates in the Mid-Atlantic region. Virginia does not provide a wholly-competitive electricity market, but local regulators enable co-ops such as the Northern Virginia Electric Cooperative (NOVEC) to resell service from monopoly provider Dominion Energy — doing business as “Dominion Virginia Power.” Therefore, Dominion Virginia Power and NOVEC do not compete on price but rather on customer service offerings.

Disaster Risk

The Northern Virginia market is at low overall risk for natural disasters. Northern Virginia is far enough inland to avoid the full force of hurricanes, but does feel the impact of these storms’ remnants. While not an annual occurrence, large storms (called “nor’easters”) can strike the region with enough rain, now, and ice to cause power outages and impede traffic.

In our previous articles on the Northern Virginia Data Center Market, we explored the data center building boom in the area, and factors driving supply and demand.

For more on the Northern Virginia market, we invite you to download the Data Center Frontier Special Report: The Northern Virginia Data Center Market, sponsored by RagingWire Data Centers.