Data centre Location factors

Author

Leitch - ChatGPT

Published

July 6, 2025

Data Center Location Factors and Geographic Trends

Key Factors Determining Data Center Location

When selecting a data center site, companies evaluate multiple factors to ensure efficiency, reliability, and cost-effectiveness. The most critical considerations include:

Power Availability & Cost

Reliable, affordable power is often the primary factor, accounting for 60-70% of ongoing expenses. Operators typically target electricity rates below $0.07/kWh, preferably around $0.05 or less. Data centers gravitate toward areas with competitive energy markets, proximity to inexpensive generation (hydro, wind, solar), and stable infrastructure with redundant feeds.

Network Connectivity

Low-latency, high-bandwidth connectivity is essential. Ideal sites are near major fiber routes, Internet exchange points, and telecom hubs. Multiple providers and diverse fiber paths prevent single points of failure. Major data center markets like Northern Virginia, Dallas-Fort Worth, and Silicon Valley developed due to dense fiber networks. Colocation providers prioritize locations “along robust fiber routes” even if power costs are higher.

Cooling, Water, and Climate

Cooler climates enable free cooling for much of the year, reducing energy consumption. Hot or humid regions significantly increase cooling costs. Water-based cooling systems require sustainable water supplies, making arid locations challenging unless alternative cooling technologies are employed. Climate affects energy needs, and water availability can be decisive.

Land and Infrastructure

Data centers need secure sites with room for expansion, appropriate zoning, and reliable infrastructure. Transportation access matters for equipment delivery. Stable foundations away from flood zones, fault lines, or wildfire areas reduce disaster risks.

Skilled Labor

Access to IT professionals, engineers, and technicians is crucial. Proximity to universities or tech hubs ensures qualified talent. Remote locations often struggle with staffing, leading to operational challenges.

Regulatory Environment

Supportive policies, streamlined permitting, and tax incentives strongly influence location decisions. States offering sales tax exemptions or property tax breaks attract investment. Community support and environmental compliance feasibility are also important.

Data Center Types and Location Needs

Hyperscale Data Centers

These massive facilities (20-100+ MW) prioritize low operating costs and scalability. Cheap power is paramount, making remote locations near renewable energy sources attractive. AI training workloads can be located “where people are scarce but energy is plentiful” since latency isn’t critical. Companies like Meta and Google built in rural Pacific Northwest for cheap hydro power and cool climate.

Traditional Enterprise & Colocation

These smaller facilities (typically under 20 MW) prioritize customer proximity and connectivity over absolute lowest cost. Colocation providers cluster in major cities to serve local enterprises and interconnect with carriers. They seek “the lowest cost possible within their target geography” rather than distant rural sites.

Edge Data Centers

Small, distributed facilities placed near end-users for ultra-low latency. Location is driven entirely by proximity to users or devices. Companies like Leading Edge DC built networks linking micro data centers to major clouds. Edge facilities complement hyperscale centers by bringing computing closer to demand pockets.

Geographic Patterns in the USA

The U.S. demonstrates two distinct strategies:

Near Cities

Metropolitan areas like Northern Virginia, Silicon Valley, Dallas, and Chicago became data center hubs due to dense fiber networks, Internet exchanges, and large user bases. Ashburn exploded as the world’s largest cluster thanks to reasonable land prices, electricity ~20% below national rates, skilled workforce, and tax incentives.

Remote Areas

Hyperscalers have built in rural locations for cost advantages. The Pacific Northwest’s Columbia River Valley attracted Google and Facebook with inexpensive hydroelectric power. Other examples include Iowa (wind power), Upstate New York (Niagara hydro), and rural Ohio (solar/wind farms). As NVIDIA’s CEO noted, it makes sense to locate compute-intensive facilities “where energy is plentiful” even if far from cities.

Many providers use a distributed approach: latency-sensitive services in metros, massive compute farms in low-cost regions.

Australia’s Capital City Concentration

Australian data centers are heavily concentrated in capital cities for several reasons:

Population and Demand

Two-thirds of Australians live in five main coastal cities. Digital services demand is naturally heaviest in these metros, making them logical infrastructure hubs.

Communications Infrastructure

Undersea cables land in Sydney and Perth; major Internet exchanges are in capital cities. Moving away from metros means costly backhaul. The centralization of network infrastructure leads operators to build where the fiber is.

Market Ecosystem

Most Australian data centers served colocation or enterprise needs, with companies opting for redundancy between cities rather than remote builds. The vast majority of colocation facilities are in mainland capitals and Canberra.

Infrastructure and Environment

Capital cities have developed power grids and milder coastal climates compared to the extreme heat and water scarcity of the interior. Sydney and Melbourne historically offered reliable power infrastructure.

Workforce

Tech workforce concentration in cities ensures access to skilled staff and support services. Regional data centers would struggle finding local expertise for 24/7 operations.

This concentration means regional users historically faced higher latency and bandwidth costs. Change is emerging slowly, with edge deployments in regional cities like Newcastle and Wollongong, and pioneering projects in places like Port Hedland leveraging renewable energy. However, Australia’s data center industry remains firmly rooted in its capital cities.