Powering the Digital Age: The Top 5 US Cities for Data Center Investment in 2023

This article was updated on 9/18/2023.

Data centers have become a cornerstone of the digital economy. They provide the infrastructure necessary to meet the rising demand for cloud-based digital services and data storage. Given the expanding need for digital services, many investors see data centers as a potentially lucrative investment opportunity.

In this piece, we dissect the appeal as well as the performance and risk parameters of these relative newcomers to the economy, as well as rank the top 5 US cities for data center investment and development in 2023, according to the following criteria:

Location

When contemplating an investment in a data center, location is among the most important factors to consider. A skilled workforce, fiber optic infrastructure, and affordable, readily available energy sources are necessities for data centers.

Data centers require speedy and dependable internet connection, therefore being proximate to fiber optic node infrastructure is essential. It is important to evaluate risks related to geopolitical stability and natural calamities, and In general, the location of the data center's economic, technological, and physical infrastructure should be investigated.

Client Demand

The demand for data centers is influenced by a number of factors, including a growing population, corporate expansion, and cloud computing use.

Understanding demand for data centers in the local market is necessary to assess the chances of a successful investment. By analyzing metrics like co-location demand, business growth, and cloud adoption rates, investors can determine whether there is sufficient local demand to warrant the investment.

Infrastructure

The infrastructure of a data center is crucial to its operation. Data centers require a variety of infrastructure, including networking, energy flow and storage, cooling, and security systems. The design and development of the infrastructure must be reliable, expandable, and efficient.

The most modern technologies, such as edge computing, high-performance computing, and in today's market, especially artificial intelligence, should be leveraged to address the growing demand for digital services.

Regulatory Structure

Investment decisions may be significantly impacted by regional variations in data center rules. Building codes, tax legislation, and environmental regulations must all be taken into account. Investors must make sure they are familiar with the local regulatory environment in order to determine whether an investment is feasible.

Cooperation With Professional Operators

Investment in data centers calls for specialized knowledge, so partnering with knowledgeable data center operators can reduce risk and improve investment performance. Operators with experience can provide crucial localized information on a region's legal system, infrastructural layout, and market demand.

Financial Performance

Before making a significant investment in a data center, it is essential to evaluate the financial performance of the facility. Evaluations of capital expenditures, operating costs, revenue growth, and profitability are crucial.

Since data centers tend to have shorter, more volatile repayment periods, investors should confirm that the investment provides a sufficient return to offset the risk.

With the goal posts so described, here are the top 5 US cities for data center investment in 2023:

#5 – Northern Virginia

Northern Virginia, known as "Data Center Alley" and is home to a high concentration of data centers due to its proximity to Washington, D.C., and its robust fiber optic infrastructure; however, Virginia taxpayers have subsidized the establishment of data centers and only recouped 72 cents on the dollar since 2010, leading to vocal objections about continuing to do so.

#4 – Silicon Valley

Silicon Valley is a hub for technology companies and has a highly skilled workforce, robust infrastructure, and a favorable business environment. Risks include those from natural disasters, particularly earthquakes, as well as potential fallout as the trend of workers relocating from the valley takes shape.

#3 – Dallas-Fort Worth, Texas

Dallas-Fort Worth has a low cost of living, favorable tax policies, and a robust fiber optic infrastructure that makes it attractive for data center construction. The metroplex currently houses 66 data centers, of 2701 in the US, indicating the metroplex punches above its weight in data center applications and returns.

#2 – Chicago, Illinois

Chicago has a strong tech industry, a favorable business environment, and access to reliable and affordable energy sources. On the downside are Chicago's high tax structure and the corresponding need to negotiate with potentially inbound businesses for tailored access to the city's political and economic resources that enable growth.

#1 – New York City, New York

New York City has a large pool of skilled workers, a robust fiber optic infrastructure, and a strong financial industry that could drive demand for data centers. Without question, NYC remains the top repository of data value from an economic standpoint, as well as from a colocation standpoint, as HFT and other firms position for minimal latency, and as such garners the top spot in our rankings.