Capital expenditure is flowing into data centres at a rapid rate. Buoyed by the growing adoption of cloud computing and rapidly evolving technologies, including artificial intelligence (AI), the sector is projected to increase from $348 billion in 2024 to $652 billion by 2030 (opens a new window). This substantial shift is reshaping investment portfolios and redefining the global real estate sector.
Yet, the unique profile of data centres — and continuous evolution within the space — is not without risk. For developers and investors, selecting a location for a new data centre requires careful deliberation and sound risk mitigation.
Below, we look at some of the key factors to consider:
Grid infrastructure and connectivity
Reliable infrastructure and connectivity are imperative for a data centre site. Businesses should prioritise sites that can offer low latency, high speeds, and uninterrupted performance. This ensures the data centre can maintain seamless operations during peak traffic. Robust connectivity can also attract external clients/customers by providing secure access to responsive cloud infrastructure via colocation.
Power supply
Stable and dependable power supply ensures data centres will remain operational — even during peak-demand. If possible, access to renewable energy sources can help businesses to realise sustainability goals and reduce operational costs, although these must be weighed carefully against reliability concerns.
Many companies are already trialling new solutions to power data centres while satisfying growing energy consumption. In September 2024, software company Oracle announced (opens a new window) that it was designing a data centre powered by three small modular nuclear reactors (SMRs). A month later, Google agreed a deal (opens a new window) to buy power from Kairos Power to meet its electricity demands for AI.
Climate and natural disaster perils
Geographical location is a crucial factor in the long-term stability and performance of a data centre. When choosing a location, developers must assess the likelihood of natural disasters such as earthquakes, floods, and hurricanes. Additionally, regions with extreme temperatures or high humidity levels can increase fire risk, complicate cooling methods, strain infrastructure, and increase wear on equipment — hampering data centre efficiency and potentially elevating costs.
By minimising the risk of downtime, selecting a geographically secure location can also help to secure more advantageous insurance terms.
Proximity to end-users
To minimise latency, data centres should be located close to the businesses and users they serve. Locations in tier-1 cities, such as London, offer this proximity along with strong connectivity, and access to a wide talent-pool. But these advantages must be weighed against other concerns, such as higher costs and security. Conversely, many remote locations offer cheaper land and enhanced physical security, but they often require additional investments into network connectivity and infrastructure.
Consequently, tier-2 cities are becoming (opens a new window) the new data centre hotspots, as developers look to capitalise on lower costs and better infrastructure, while maintaining proximity to users. Edge data centres can also help to bolster support to customers further away from core data centres. Ultimately, a well-defined strategy of interconnected data centres across both core and edge locations can help reach all clients and partners, without sacrificing service standards.
Security
Data centres house valuable and sensitive data, often supporting critical infrastructure and services. As such, its vital to ensure that data centre premises are secure.
To protect their assets, developers and owners should consider options including 24/7 surveillance, including digital and in-person surveillance teams. Securing the site perimeter can also help to prevent authorised and damage to infrastructure and equipment from bad actors or members of the public.
Beyond physical infrastructure, network, cyber, and data security measures are equally crucial. Robust firewalls, intrusion detection systems, and encryption protocols can help to mitigate cyberattacks, and minimise the potential for knock-on cyber-physical risks.
Political and regulatory considerations
Political feasibility and viability are crucial issues for location selection. While many local and regional authorities have launched incentive schemes and tax breaks to encourage data centre construction, others are less supportive (opens a new window). Opponents’ concerns often include the potential for data centres to overwhelm local energy, or to drive up local resident’s utility bills. In the case of the latter, this prompted New Jersey state senator Bob Smith to propose a new bill (opens a new window) that would require data centres to arrange to supply their power from new, clean energy sources. Local residents may also attempt to thwart plans for development (opens a new window).
Developments must also comply with local industry and regulatory standards. Failure to adhere to these standards could invite legal risk, impact client trust, and hinder developers’ ability to secure financing and insurance coverage.
Environmental risks
Building a data centre brings considerable environmental risks. Most centres rely on evaporative cooling systems to maintain their temperatures – a process that consumes significant water volumes and produces wastewater discharge. But chemicals used in the construction of data centres can also seep into the soil, before finding their way into local water systems. For nearby residents and communities, this can threaten the availability and safety of local water supplies.
When choosing a location for their data centre, developers will need to consider the impact on these communities. According to Bloomberg (opens a new window), approximately two-thirds of new data centres built or in development since 2022 are in places already gripped by high levels of water stress. If water supplies are unreliable, it could undermine the long-term viability of certain projects. But broader financial and reputational repercussions may also follow if operators are found to have caused environmental harm - including fines, remediation costs, or operational restrictions.
Scalability and future growth
When developing a data centre, it is prudent investors and constructors consider scalability and future expansion potential. A prospective site with ample land and resources issues the flexibility and possibility to scale a site as demand grows — eliminating disruption, costly overhauls, or relocations.
For further information and discussion on your data centre project, please visit our Data Centres (opens a new window) page, or contact a member of our team.
