Are Data Center Developers Changing Their Strategies?

Significant changes are underway in how data centers are built, sited, and powered — and it goes well beyond the usual churn of technology upgrades. Developers aren't just optimizing for outdated metrics anymore. They're rethinking the fundamental logic of where to build, how to power those facilities, and what stakeholder relationships need to look like before a shovel ever hits the ground.

Khara Boender of the Data Center Coalition put it plainly: developers are increasingly considering moving. That's a loaded statement. When an industry that spent decades clustering around a handful of established markets — Northern Virginia, Silicon Valley, the Chicago suburbs — starts talking seriously about geographic diversification, something structural has shifted in the calculus.

Here's what's driving it, what it costs, and who's best positioned to win.

The Old Playbook Is Breaking Down

For most of the past two decades, data center development strategies followed a predictable formula: locate near fiber backbone corridors, find permissive zoning, secure cheap power, and build dense. Northern Virginia became the world's largest data center market by executing this playbook relentlessly. At its peak concentration, Loudoun County alone housed more than 25 million square feet of data center space, handling an estimated 70% of global internet traffic.

The problem is that success created its own bottlenecks. Power constraints in established markets are now severe enough that Dominion Energy — the primary utility serving Northern Virginia — has warned of multi-year interconnection queues for new large loads. When a developer can't get a utility interconnection agreement for three to five years, the location advantage evaporates entirely.

This isn't just a Virginia story. Similar congestion is hitting the Chicago metro, the Phoenix corridor, and parts of the Dallas-Fort Worth market. The hyperscalers — Microsoft, Amazon, Google, Meta — are absorbing power capacity at a pace that leaves smaller developers scrambling for scraps on the grid.

Where Developers Are Actually Looking

The shift Boender described isn't abstract. It's showing up in real site selection behavior. Secondary and tertiary markets are getting serious attention from developers who would have dismissed them five years ago.

The appeal is straightforward: lower land costs, less permitting friction, available grid capacity, and in some regions, proximity to renewable energy generation. Markets like the Midwest wind corridor, the Southeast, and parts of the Mountain West are seeing exploratory activity that would have seemed far-fetched a decade ago.

But there's a catch that site selection spreadsheets don't always capture cleanly. Fiber connectivity, skilled labor pools, and utility reliability in emerging markets often lag behind the infrastructure that established hubs built over 20 years. A developer who moves to a market with abundant cheap power but inadequate fiber density or a thin bench of data center technicians may find themselves importing both bandwidth and workforce — and that changes the economics considerably.

The developers who navigate this successfully are the ones doing serious pre-development diligence on utility relationships, not just checking available capacity numbers on a map. A power figure on paper means very little if the substation serving it needs $40 million in upgrades before your load can interconnect.

Energy Efficiency Is No Longer Optional

Environmental considerations have crossed from "nice to have" into a hard constraint on capital deployment. Corporate sustainability commitments — particularly among the hyperscalers and large enterprises that lease colocation space — are now creating downstream pressure on developers. If a colocation provider can't credibly demonstrate a path to renewable-matched power, it risks losing anchor tenants to competitors who can.

Power Usage Effectiveness (PUE) — the ratio of total facility power to IT equipment power — has long been the industry's baseline efficiency metric. A PUE of 1.0 is theoretical perfection; anything under 1.3 is considered strong for most enterprise deployments. Hyperscaler-operated facilities have pushed that envelope, with Google and Microsoft reporting average PUEs below 1.2 across their global portfolios.

The efficiency gap between best-in-class and average data center infrastructure is enormous — and increasingly, that gap has a dollar figure attached to it that shows up in lease negotiations.

Liquid cooling adoption is accelerating partly for this reason. AI workloads running on dense GPU clusters generate heat loads that traditional air cooling handles poorly. Liquid cooling can cut cooling-related energy consumption by 30% or more in the right configurations. Developers building for AI inference and training workloads are now treating liquid cooling infrastructure as a baseline requirement, not a premium option.

The Financial Picture Is More Complicated Than It Looks

On the surface, moving to lower-cost markets looks attractive. Land that runs $500,000 to $1 million per acre in Northern Virginia might cost a fraction of that in emerging markets. Power that's constrained and expensive in established hubs might be abundant and cheaper elsewhere.

But data center development economics are highly sensitive to factors that don't show up in initial cost comparisons. Permitting timelines, utility upgrade costs, transmission line construction, and the carrying cost of capital during extended pre-construction periods can transform an apparently cheap market into an expensive one by the time a project delivers.

There's also the demand side to consider. A data center is only worth building where customers will actually buy or lease capacity — and customer concentration still skews heavily toward established markets, particularly for enterprise and colocation products. Hyperscale build-to-suit deals are more geographically flexible, but they require relationships and scale that most developers don't have.

The developers seeing the strongest returns right now are generally those who locked in power purchase agreements for renewable energy two to three years ago, before that market tightened, combined with sites in markets where utility capacity exists today rather than in a promised queue. That combination — secured green power plus near-term deliverable capacity — is genuinely rare and commands a premium.

What Successful Adaptation Actually Looks Like

A few patterns separate developers who are navigating this moment well from those who are getting squeezed.

First, early and deep utility engagement. Developers who treat utility relationship-building as a deal-phase activity rather than a pre-construction formality are losing ground to those who cultivate those relationships years in advance. Understanding a utility's generation mix, transmission constraints, and upgrade roadmap before committing to a site is now a core competency, not a nice-to-have.

Second, modular and phased development. The days of betting $500 million on a single campus build-out before demand materializes are giving way to phased approaches that let developers right-size capacity delivery to actual leasing velocity. This requires different capital structures, but it substantially reduces the risk of delivering into a soft market.

Third, genuine infrastructure partnerships. Some of the most interesting development activity happening right now involves developers partnering with utilities, municipalities, or even industrial companies to co-develop the enabling infrastructure — substations, transmission lines, water rights — that makes a site viable. These deals are complex and slow, but they're the only realistic path to scale in markets where infrastructure doesn't already exist.

What Comes Next

Regulatory pressure is building in ways the industry can't ignore. Several states are beginning to examine data center power consumption — which now accounts for roughly 2% of U.S. electricity consumption and is growing — as a grid reliability issue, not just a corporate sustainability question. That framing shift matters. It opens the door to regulations that go beyond voluntary commitments and start imposing hard requirements around load flexibility, renewable procurement, and efficiency standards.

At the same time, AI infrastructure demand is creating a pull so strong that it's distorting traditional market dynamics. The requirement for GPU cluster infrastructure — dense power, liquid cooling, ultra-low-latency networking — is different enough from traditional compute that some developers are essentially building two product lines simultaneously.

The developers who will define data center development strategies over the next decade aren't the ones who found a clever workaround for today's constraints. They're the ones who recognized that the constraint environment is now permanent and built organizations capable of operating within it — which means treating energy procurement, utility relations, and infrastructure development as core business functions rather than project-specific logistics.

The market is rewarding that seriousness right now. The question is how many developers will recognize it before the window narrows further.

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