- Power and land shortages in primary data center hubs are pushing developers toward secondary markets.
- Secondary markets with access to affordable, reliable power, supportive tax policies, and low natural disaster risk are gaining traction.
- Tax incentives, utility interconnection timelines, and climate resilience are key differentiators between attractive and unattractive secondary markets.
- Developers must act strategically, as many secondary markets still face regulatory or infrastructure limitations.
What’s Happening
AI and cloud-driven demand for data infrastructure is surging, reports PrincipalAM. As a result, many of the world’s largest primary data center markets—such as Northern Virginia, Silicon Valley, and Amsterdam—are reaching their development limits. Scarcity of land and delays in power access and permitting are driving historically low vacancy rates, often under 2%. To meet projected demand over the next 3–5 years, developers are increasingly scouting secondary markets.
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What Developers Are Looking For
1. Land + Power Availability:
Sites with a straightforward path to utility power and permitting are now critical. Power constraints in major markets like New York and Dublin have slowed or halted new development, leading developers to prioritize locations where utility infrastructure is already in place or easily accessible.
2. Power Costs + Reliability:
With power accounting for ~20% of a data center’s operating costs, markets with lower kilowatt-hour rates have a distinct advantage. While reliability is non-negotiable, cost competitiveness is what makes a site viable long term.
3. Tax Incentives:
Tax breaks remain a decisive factor, especially in the US, where state-level incentives can significantly lower development costs. Markets like Georgia still offer exemptions, while others—like Denver—have lagged, though legislative momentum may shift that soon.
4. Climate + Disaster Risk:
Even with failover systems in place, tenants continue to favor low-risk areas. Flood zones, hurricanes, wildfires, and extreme heat can disrupt operations or inflate cooling costs. Sites with low exposure to environmental hazards are more likely to attract institutional capital and long-term tenants.
Where The Opportunities Are
While the report doesn’t name specific emerging secondary markets, developers are likely targeting regions with:
- Existing infrastructure (e.g. fiber routes, substations)
- Pro-development regulatory environments
- Room for large-scale campuses (multi-hundred MW capacity potential)
- Favorable power pricing, often found in regions with renewable energy abundance or surplus industrial grid capacity
Examples of secondary markets that have already gained momentum include Columbus (OH), Salt Lake City (UT), Des Moines (IA), and San Antonio (TX). However, market attractiveness can change quickly depending on local policies or grid constraints.
Why It Matters
Secondary markets are no longer just fallback options—they’re becoming critical to meeting next-gen digital infrastructure needs. Developers that can navigate permitting, infrastructure timelines, and regional incentives will be best positioned to capture this fast-growing segment. With global data center demand expected to surge—driven by AI, cloud, and edge computing—the window for securing premium secondary sites is closing fast.
Looking Ahead
Expect continued migration into underutilized US metros and international hubs with scalable infrastructure and political support. Power scarcity and permitting delays continue to challenge primary markets. As a result, secondary markets are set to drive the next phase of data center development. Investors, developers, and tenants are already taking notice.
