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Data Centers Drive Real Estate Market
in Northern Virginia

by Tom Branham, Washington D.C., August 2019

 

The Northern Virginia Data Center Market is experiencing a building boom unlike any the industry has ever seen.

 

As data center REITS and co-location providers compete to provide homes for cloud services providers, the region is seeing an unprecedented surge in development and demand, according to Data Center Frontier.

 

Real estate prices reflect the red-hot market. The trend is creating a positive impact on local tax revenues and tax rates.

 

Expansion Underway

 

An astounding 70% of the world’s Internet traffic flows through Northern Virginia. The data center market is spread across several towns in Loudoun, Prince William, and Fairfax Counties, and shows signs of expanding into adjacent counties, as well as other parts of the state.

 

Loudoun County is home to the largest concentration of data centers in the world, with more than 10 million square feet currently in operation and millions more to come. The region’s proximity to federal government agency headquarters plays a role in the area’s superb network connectivity.

 

Tax Incentives

 

Legislation making qualified data center facilities exempt from Virginia’s sales and use taxes went into effect in 2009. The statewide data center tax break exempts computer equipment, enabling software and other enabling hardware from the sales and use tax — 6% in Northern Virginia and 5.3% across the rest of the state.

 

To qualify, data center providers must spend at least $150 million and create between 25-50 new jobs in the area. These tax breaks have since been extended through 2035 and were also expanded to encourage service providers to build multiple data centers.

 

Revenues Over Budget

 

In fiscal 2018, Loudon County recorded actual tax revenues over budgeted amounts, including $7.2 million from real property and $46 million from personal property, which includes computer equipment and other furniture and fixtures located in data centers and other local businesses.

 

The County Board of Supervisors unanimously approved a cut to the real estate tax rate this year, along with pay raises for county employees, and increased funding for public schools. The 2020 operating budget is largely based on increased tax revenue anticipated from data centers’ personal property. Loudon estimates it will collect $200 million in fiscal 2020 from the personal property tax on computer equipment, up 35% over 2019.

 

Officials believe the growth of the data center sector has been good for the region. “This year in Loudoun County we will have a quarter billion dollars of tax revenue from data centers,” Buddy Rizer, Executive Director of Economic Development told Data Center Frontier. “Data centers are the engine of innovation. They enable a lot of other businesses.”