How to assess a property’s data center potential

The AI explosion added heat to an already hot market, driving data center demand to new heights. With vacancy in colocation data centers at a record low of 3% in the United States, developers are urgently seeking land and power to build new facilities.

Naturally, the tight market has many real estate owners wondering if their old industrial site, extra office space or legacy data center could have value for data center development or redevelopment.

In this article, experts from JLL’s data center solutions team offer tips for assessing your property’s potential as a data center.

Why data center developers are chasing utility

While data centers have basic acreage requirements like all property types, the number that truly matters is power capacity. New data center developments regularly require 100 megawatts (MW) or more, according to JLL research.

Data centers built for AI need even more power. Big tech companies, known as hyperscalers, are building AI data centers with more than 1 gigawatt (GW) of capacity. These mammoth facilities require 500-800 acres of land and may have multiple power substations on site. 

However, some enterprises see value in owning and operating their own small data centers instead of only leasing space in big colocation facilities due to rental rate increases and limited availability.

“It’s not as common, but there are still a fair number of companies looking to build their own bespoke data centers, typically between five and 10 MW,” says Peter Skae, Managing Director, Data Center Technical Services, JLL. “These smaller sites aren’t built for running AI models, but more for legacy applications.”

Understanding the link between location and power requirements

A site equipped for 5-10 MW can have value for an enterprise user or an edge data center in a core market. As you move further out from city centers, developers would like to build large campuses at scale, according to Andy Cvengros, Managing Director, Co-Lead of U.S. Data Center Markets, JLL.

“If you’re in the outer suburbs of a major market like Chicago, a developer may look at a site with 5 – 10 MW of bridge power, but that’s just the initial power needed for construction and time until transmission power is delivered,” says Cvengros. “Ultimately, they want 200-300 MW, so they need to know what’s available at the utility substation level to get up to the full load.”

Rural sites further from major cities are attracting interest for AI data centers, but they need to be able to support 500 MW to 1 GW of power, says Cvengros. Conducting a load study to see what’s possible or even a load commitment from the utility will be necessary to attract operators and hyperscale users.

With these base requirements in mind, the following are some tips for assessing whether you can monetize power capacity in various property types.

Scenario #1: Redeveloping an industrial site as a data center

On the surface, many retired manufacturing facilities, power plants, steel mills and other industrial sites look ideal for data center development. These sites may have plentiful land and infrastructure to support 50 MW or more. However, this type of adaptive reuse requires a more nuanced look.

The land may require expensive remediation depending on the site’s prior use. Cvengros also recommends evaluating other factors, such as the number of fiber providers and type of fiber in the area. Developers and Users require three to four redundant providers fed by redundant paths.

“Most importantly, it is vital to have an agreement with the utility to supply your site with power. Just because the infrastructure is there doesn’t mean the utility can provide it,” he cautions.

Additionally, data center sites need to be away from potential locational risks. If the site is located in a floodplain, at the end of an airport runway, next to train tracks traveled by high-speed trains or near chemical plants with combustible materials, it likely won’t work due to the mission critical aspect of these facilities. 

Scenario #2: Monetizing capacity in an existing data center

Many companies no longer need their entire data center after migrating some applications to the cloud. There are a few options to consider in these instances. Some companies sell the facility outright and vacate the premises. Others lease out the available capacity or do a sale-leaseback transaction with a colocation provider.

If you face this situation, you’ll need to assess whether the facility meets modern requirements. “Data centers built in the early 2000s are coming to the end of their life,” says Cvengros. “They are no longer efficient by today’s standards and likely will require significant capital upgrades.”

Skae agrees, noting that the power infrastructure on such a site is more valuable than the data center itself. He remembers a transaction in which a colocation company bought a former telecom headquarters building because it had a 40 MW substation on site with approval from the utility to go up to 80 MW.

“In that case, the data center was actually a hindrance. The first thing they did was tear it down,” says Skae.

Scenario #3: Adapting a corporate office for data center tenants

Office building owners may consider data centers as they brainstorm new uses for an underutilized property, but it’s often not worth exploring.

“The typical office building doesn’t have tall enough ceilings for server cabinets, and the HVAC system can’t keep up with a data center’s cooling needs. The land is likely worth more than the building to a data center developer,” says Cvengros. With post covid vacancy, it can often make more sense to tear down the building when located in core markets and near power.

Reimagine your site as a data center

If your site checks all the boxes as a possible location for a new data center, it might be time to bring in a real estate partner. JLL’s data center team comprises experts across the country who can provide a detailed assessment on your site.

Contact us today to discuss your site’s potential.