Data Center Development: What You Need to Know

Data centers emerge quietly, unlike factories or stadiums. A zoning request here, a county commission meeting there — and before most residents understand what's being built, the economic and physical reality of the community has shifted. That's exactly what's playing out in Leavenworth County, where commissioners recently met with a data center developer to discuss what this kind of development actually means for the area.

It's a scene repeating itself across the country. Whether you're an investor, a local official, or a landowner sitting on a parcel that just got interesting, understanding how data center development works — and what it demands — is no longer optional.

What Actually Defines Data Center Development

Strip away the jargon, and a data center is a building full of servers that needs three things in abundance: power, cooling, and connectivity. Everything else — the site selection, the zoning battles, the infrastructure negotiations — flows from those three requirements.

A hyperscale facility can consume anywhere from 20 to 100+ megawatts of power, enough electricity to supply tens of thousands of homes. That's not a rounding error on a utility's balance sheet; it's a fundamental load calculation that changes how a regional grid operates.

The key players shaping data center development today break into a few distinct camps. You have the hyperscalers — Amazon Web Services, Microsoft Azure, Google Cloud — who build and operate their own massive campuses. Then there are the colocation providers like Equinix and Digital Realty, who develop the facilities and lease space to enterprise clients. Increasingly, specialized developers identify opportunity markets, acquire land, secure entitlements, and either build out or sell to larger operators. That last category is the one most likely to show up at a county commission meeting.

The Infrastructure Impact Nobody Fully Accounts For

When a data center comes to town, the conversation usually starts with jobs and tax revenue. That's legitimate — but it's incomplete.

The physical infrastructure changes are significant and often underestimated at the local government level. A large facility requires dedicated fiber runs, upgraded substations, and, in many cases, new transmission infrastructure negotiated directly with the utility. Roads need to handle construction traffic that can run 18 months or longer. Water systems get stressed if the cooling strategy relies on evaporative cooling towers, which can consume millions of gallons annually.

The infrastructure impact of a single large data center can rival that of a mid-sized manufacturing plant — with a fraction of the workforce.

That last point is where local expectations sometimes collide with reality. A 200,000-square-foot data center might employ 30 to 50 full-time staff once operational. Compare that to a distribution center of similar footprint employing 500 people, and you understand why economic development officials need to think carefully about what they're optimizing for. The tax base argument is often strong — data centers carry significant assessed value in equipment alone — but the employment multiplier is modest.

For communities like Leavenworth County, the question isn't just whether to welcome this development. It's whether the local infrastructure can absorb the demand without disproportionate public cost, and who pays for the upgrades that make the project viable.

How Local Governments Are Adapting — Slowly

Most county zoning codes weren't written with hyperscale computing in mind. Data centers exist in a regulatory gray zone in many jurisdictions: too industrial for commercial districts, too quiet and clean for heavy industrial classifications, and often too power-hungry for utility frameworks designed around residential and light commercial growth.

The result is that local government adaptation tends to happen reactively. A developer files a request, commissioners do their homework fast, and policy gets made in the middle of a specific negotiation rather than ahead of it. That's not ideal for anyone.

Some jurisdictions have gotten ahead of this. Northern Virginia — home to the highest concentration of data center capacity on Earth, with over 25% of the world's internet traffic routed through Loudoun County alone — has spent years refining its approach, including recent moves to restrict data center sprawl in rural areas after community pushback. That's the mature end of the regulatory spectrum.

Most counties encountering their first data center proposal are essentially writing policy in real time, without the benefit of a decade of precedent.

What smart local governments are doing now: requiring detailed infrastructure impact assessments before approvals, negotiating community benefit agreements that tie tax incentives to specific capital improvement contributions, and consulting with utility partners early to understand grid capacity constraints. The counties that do this well end up with better projects and fewer surprises. The ones that don't sometimes find themselves holding infrastructure obligations they didn't see coming.

The Financial Opportunity — and the Fine Print

For investors and landowners, the data center development sector has produced some of the most compelling returns in commercial real estate over the past decade. Data center REITs have consistently outperformed broader REIT indices. Land near existing fiber corridors and power infrastructure has appreciated sharply in target markets.

The opportunity is real. So is the fine print.

Data center costs are front-loaded and capital-intensive in ways that distinguish them from conventional commercial development. Construction costs for a fully built-out facility routinely run $10 to $20 million per megawatt of critical IT load. A 50-megawatt campus — mid-sized by current standards — represents $500 million to $1 billion in development cost before the first server rack is installed. That capital requirement shapes everything: who the viable developers are, what financing structures work, and how long the development timeline runs.

For local stakeholders evaluating a data center proposal, the cost-benefit analysis hinges on a few key variables. What's the negotiated tax treatment? Many states offer aggressive incentives — sales tax exemptions on equipment, property tax abatements — that reduce public revenue in the near term. What infrastructure commitments is the developer making versus expecting the public to fund? And what's the realistic timeline from groundbreaking to full assessment value?

A well-structured data center deal can generate tens of millions in annual tax revenue for a county. A poorly structured one can saddle local taxpayers with infrastructure costs that take a decade to recover.

The difference is almost always in the details negotiated before the first shovel hits the ground.

Where Data Center Development Goes From Here

Two forces are accelerating demand in ways that make the current development cycle look like a warm-up act: artificial intelligence and the energy transition.

AI workloads are dramatically more power-intensive than conventional cloud computing. Training a large language model can consume as much electricity as hundreds of thousands of homes over the course of weeks. As enterprises move from experimenting with AI to deploying it at scale, the demand signal to data center developers is clear and growing. Industry analysts at JLL projected that data center capacity demand would double between 2023 and 2026 — a forecast that, if anything, now looks conservative given the pace of AI adoption.

The sustainability dimension is where the most interesting evolution is happening. Data centers have historically been significant carbon emitters by virtue of their power consumption. The industry's response has been threefold: aggressive renewable energy procurement (Microsoft, Google, and Amazon have all made significant commitments), improvements in power usage effectiveness (PUE) ratios, and emerging interest in on-site generation including fuel cells and small modular reactors.

That last option — nuclear-powered data centers — has moved from speculative to operational planning faster than most observers expected. Microsoft's agreement to restart a unit at Three Mile Island specifically to power data center load is the clearest signal yet that the energy calculus for this industry is fundamentally changing.

For communities evaluating data center development proposals today, the forward-looking insight is this: the facilities being permitted now will operate for 20 to 30 years. The regulatory frameworks, infrastructure agreements, and tax structures put in place for today's projects will define the relationship between local governments and this industry for a generation. Getting those foundations right — not just approving or rejecting individual projects, but building coherent policy — is the work that matters most. The developers will keep coming regardless. The question is whether communities are ready to negotiate as informed partners rather than surprised recipients.

Explore more about data center development opportunities in the InfraSale Marketplace.

[INTERNAL LINK: data center infrastructure]

[INTERNAL LINK: economic impact of data centers]

[INTERNAL LINK: local government policies on data centers]