Due Diligence and Zoning for Data Centers

Our modern society has a voracious demand for data and we are increasingly turning to data centers to satisfy this need. The digital economy, growth in mobile devices and applications, increased availability and reliance on the internet of things (IoT) all translate into tremendous growth of cloud services and an explosion in data center traffic. The latest update to Cisco’s Global Cloud Index, which annually assesses network traffic trends around the world, forecasts that “global data center traffic is projected to triple between 2014 and 2019, with cloud traffic within data centers forecast to quadruple during that period.”¹ In North America this translates to data center traffic reaching 4.5 zettabytes² per year (373 exabytes per month) by 2019, up from 1.5 zettabytes per year (124 exabytes per month) in 2014.³

Increased demand means a greater need for infrastructure typically requiring governmental approvals from various corners: municipal, county, state and perhaps even federal agencies. Moving through these processes expeditiously is critical to successful execution of any business plan and effectively navigating these processes can make a tremendous difference as to when, or even if, a new asset comes online. Some communities already have data center zoning provisions. Middletown Connecticut, Newark Delaware and Loudon County Virginia are some examples and many other top tier market areas such as New Jersey are well versed in data center development.⁴ But increased demand for infrastructure likely means increased development of data center infrastructure in communities that may not have experience with some of the industry’s unique needs. Existing zoning laws may not provide a neat “fit” for these needs and a good deal of education about data center development and operation may be required in the process.

Begin with Definitions & Zones

Data centers as an industry and a physical development are relatively new and are not typically contemplated in many zoning codes as a separate and distinct use. When searching for properties data center developers are wise to first review permitted uses and describe their project in ways that pair with those defined uses. In part this is because certain zoning districts disallow particular uses and it is critical that an applicant’s proposed use is permitted in the zone in which the property is classified. It is also important because certain uses can trigger particular requirements that may not benefit or make sense for a data center as an enterprise. For example, it may appear simple to qualify as an “office” under a particular zoning code, but providing for the code prescribed parking requirements for that use may limit development on the property and in the end be wholly unnecessary as traditional office complexes require much more parking than data centers typically require. An understanding of the applicable definitions and zoning requirements up front can pay long-term dividends.

How is the Project Regulated?

Depending on the scale of the data center different levels of regulatory review may apply. Contrary to industry leasing standards based on power consumption, regulators still value square footage as a critical metric for evaluating any development and its impacts on a community. Many municipal codes have specific thresholds of square footage that trigger additional or perhaps more complicated regulatory review. For example, a smaller data center in an existing building will likely require only building department/code enforcement review.

By contrast, a new building, addition or even a smaller modular unit external to an existing building may require site plan review by a planning board or commission and require a much longer lead time to approval. The same technology housed outside the same office building in a temporary or semi-permanent/scalable module can be regulated in a much more widely variable manner. Depending on the nature of the project, a portable or semi-permanent module may be classified as an accessory use to the primary building on site. There may be concerns with the visual appearance of such modules, with many reviewing boards and commissions predisposed to dislike the appearance of pre-fabricated units. This can leave an applicant in a quandary as to how to get approvals for something which comes to them from vendors “as is”. Careful planning can achieve some desired mitigation including placement and screening.

Some zoning codes have site plan and special permitting standards specifically applicable to any development of a larger scale.⁵ This will require additional information and analysis regarding potential impacts to the environment including storm water and animal habitat. In these circumstances an applicant often must demonstrate compliance with particular criteria before approval and issuance of a building permit. There can be many variables involved in this process and it is important to understand at the outset what approvals are required for a given project.

Community Desire & Direction

Some communities are willing partners actively looking to host data centers within their borders. Other communities will have little to no experience with data centers and zoning provisions may not be favorable to an easy answer. It may present a challenge to bring existing real estate assets online in communities that do not have zoning provisions to accommodate the particular use and have concerns about permitting the use in the community. This can become much more cumbersome if there is opposition from members of the public. Typical site plan review and special permit review processes require a public hearing where the public may air concerns and cite potential issues with development. Achieving success in these circumstances can potentially require significant investment of time and “soft costs” requiring appearance of development teams at meetings and coordination of amended plans. Every community is different and a thorough understanding of issues up front can mean the difference between a project moving ahead on schedule, facing extensive delays or not receiving approval.

Conclusion

Data centers are moving to the edge of the network to support the accelerating demand for cloud services and speed. Increased decentralization of these physical assets will generally mean migration out of the traditional urban core or industrial park setting for many new data center facilities. It’s there where zoning and acquisition due diligence will play a key role with other typical factors such as reliable and redundant power and fiber optic cable plant. To avoid some unnecessary pitfalls and streamline opportunities, data center developers will need to increasingly borrow approaches from the real estate community. Early consultation with professionals who appreciate the unique needs of a data center coupled with due diligence and zoning proficiency can be a key and valuable differentiator

1. See Global Cloud Index (GCI).
2. For reference, a zetabyte is equivalent to 1 trillion gigabytes.
3. See North America – Data Center / Cloud Traffic Forecast
4. See for example Loudon County Virginia and Middletown Connecticut.
5. “Old Bridge, NJ Approves Data Center Zoning”