Atlanta Winning Data Center Business Fleeing Power Problems In Northern Virginia

Atlanta's available data center capacity was cut in half last year, shrinking to a new record low as digital infrastructure providers descended on the region because of its cheap, available power — an issue that has bedeviled Northern Virginia, long the dominant hub for data centers.

The vacancy rate for Metro Atlanta data centers fell from 8.3% at the end of 2021 to 3.6% at the end of last year, according to a recent CBRE report.

It was the third-largest vacancy drop among major markets, behind Dallas and Chicago, which each still have vacancy over 6%. Atlanta was the third-tightest market in the country after Northern Virginia and Silicon Valley. 

But among the seven primary data center markets, Atlanta was the only one to record less absorption of space in the second half of 2022 than it did the previous year, which, coupled with the nosediving vacancy rate, indicates that there is not enough supply to meet the demand.

Companies have been flocking to Georgia not only for cheaper power, but because Georgia Power has the capacity to handle more demand.

“We just can’t develop fast enough, and it’s benefiting Atlanta to the detriment to the other top markets that can’t keep up with demand,” said Bobby Little II, the director of digital infrastructure for Landmark Dividend. "They’re tapped out."

Last summer, the power utility for Northern Virginia, Dominion Energy, told its customers that the utility won’t be able to deliver power to a number of new data center projects at least until 2026 as it addresses insufficient transmission infrastructure issues.

The same issue could hobble utilities in Silicon Valley, where transmission substation sites can’t be energized until 2028 at the earliest, CBRE reported.

“Data center operators in 2022 were more focused on where power is available than on geography,” CBRE researchers wrote in the report. “Markets with access to power, such as Atlanta, have been beneficiaries of the Northern Virginia power restrictions.”

The report said Atlanta has over a gigawatt of new planned capacity in the pipeline. At the end of 2022, its existing inventory was roughly a quarter of that at 252.5 megawatts, according to CBRE. The market's largest deal of last year was Sony Corp. taking more than 2 MW at an Evoque Data Centers facility. 

“Our time has come,” CBRE Executive Vice President Tim Huffman told Bisnow. “The cost of our power is huge. If you think about a cloud data center in California where it’s 13 cents an hour, and here it can be 4. Even if power could be delivered today … in Virginia, [Atlanta] would pencil cheaper.”

Companies continue to fuel a data center boom across the globe as they chase capacity to handle an increase in private cloud storage and private 5G usage, especially as more employees work remotely, per CBRE. The overall vacancy rate across the U.S. fell to 3.2% last year. 

Demand also is strong among hyperscale users such as Meta, Amazon and Microsoft, which itself is developing three data centers in Metro Atlanta. There’s also a wave of pent-up demand among companies for data center storage now that capital budgets are unfrozen from the depths of the pandemic, CSR Capital Partners Managing Partner Bryan Loewen said.

CSR owns six data centers across the U.S., including two enterprise data centers in Cheyenne, Wyoming, and New York. 

“There’s also been a resurgence of enterprise leasing now that the Covid-19 pause has kind of subsided,” Loewen said. “Instead of going out and procuring their next data center space … what they did was find some solution to get them through the next couple of years.”

Little said Metro Atlanta benefited since the region has the second-best latency rate — or the time it takes digital data to travel from point A to point B — behind Loudoun County. Atlanta also has strong fiber access to Latin America's infrastructure, he said.

Those factors help data centers in Atlanta field a deluge of new demand, especially as interest rates rise and companies look to control their costs by pivoting to markets with cheaper power.

“We’re also feeling that squeeze from an interest rate environment,” Little said. “Although [Virginia is] a top market in the world, having to wait six years to get any significant power causes everyone to look elsewhere, which is great for Atlanta.”

More than 1,000 acres have been acquired for future wholesale and hyperscale data center development, according to CBRE. Huffman most recently assisted QTS to buy 615 acres in Peachtree City for a new data center campus “bigger than any in the history of our state,” he said. 

“There is a massive amount of conversation happening … with end users here," Huffman said. "So I feel bullish about this year."