Big Tech Data Centers Are Booming In The Rockies, But Not In Denver

Denver has the potential to be a major data center hub, but tax incentives in nearby states have Big Tech building elsewhere.

Data center construction is booming in the Rockies, where markets from Salt Lake City to Reno are seeing a wave of campus-scale developments driven by demand from tech giants like Microsoft, Google and Meta. But so far, this boom has largely skipped Denver. 

While colocation data center providers continue to drive modest growth in the Denver market, Big Tech behemoths and the third-party data center developers that cater to them have shied away from building hyperscale facilities in the Mile High City and in Colorado as a whole.

The reason, data center providers say, is that Colorado lacks the targeted data center tax incentives that are available in other Mountain West states like Utah, Nevada and Idaho.

State-level programs that limit the tax liability on equipment housed in data centers can be worth billions to the largest data center users and have effectively become a requirement when it comes to where major tech companies choose to build or lease facilities. But legislation that would have established similar tax breaks in Colorado failed earlier this year, creating an uncertain future for the industry in the region’s largest economic hub.

“Colorado right now is still a market driven more by enterprise and local market demand. It's not hitting hyperscale, mainly because there's a lack of tax incentives,” said Tom Traugott, senior vice president for strategy at Denver-based developer EdgeCore, speaking last week at Bisnow’s DICE Rockies event at The Curtis in Denver. 

“If that were to change, there's a lot of interest — there’s a looming opportunity there," he added. "We've got a lot of the industry’s brain power based in Colorado, but we don't necessarily have the data centers to match."

Indeed, Denver is no data center backwater. While the area’s 108 megawatts of leased capacity places it well into the second tier of data center markets, some of the industry’s major players are based in Denver or its surrounding suburbs — companies like Flexential, Vantage Data Centers, EdgeCore and H5 Data Centers.

The industry’s growth throughout Colorado has remained modest but steady, with 9.7 MW of new leasing in the first half of this year making it the 12th-highest among U.S. markets, according to JLL. This has been driven mainly by colocation providers entering the market or expanding their existing footprints, drawn by demand from the area’s rapidly expanding tech startup landscape. 

And the Denver area does have some hyperscale-oriented projects on the horizon. A QTS campus under development will eventually scale to 177 megawatts. Microsoft acquired 260 acres near Denver International Airport last year, marking the first large site purchase by a hyperscale data center user in the Denver market.

Yet Denver’s growth has been dwarfed by the flood of data center development happening elsewhere across the Mountain West, where cloud and social media giants like Microsoft, Google and Meta are building and leasing campuses at a scale of hundreds of megawatts at a time. 

Salt Lake City saw hyperscale demand drive 114 MW of new leasing in the first half of this year alone, rocketing its total leased inventory to 176.2 MW, according to JLL. This inventory figure doesn’t even include massive self-developed campuses operated by Meta and Google.

In Nevada, the Reno and Las Vegas market saw its total leased inventory climb more than 33% to 180 MW, mainly due to hyperscale demand. Google also operates its own campus near Las Vegas, while in January Microsoft acquired 274 acres for a campus near Reno. In Idaho, Meta’s planned $800M campus near Boise has spearheaded growing hyperscale interest in the state. 

Big Tech’s influx into the Mountain West comes as these industry giants scramble to find available land and power to support growing cloud demand and AI. The region offers both at relatively low cost, as well the ability to develop renewable energy projects needed to meet hyperscalers’ carbon reduction goals.

“The Rocky Mountain area is in a great position,” said David Dunn, chief operating officer at H5 Data Centers, speaking at DICE Rockies. “Look up a map of where you can effectively deploy solar and effectively deploy wind and where you can get sales tax incentives on computer equipment — a lot of that is right here in this region.” 

But Colorado is missing half of this equation: tax incentives.

Utah, Idaho and Nevada are among the more than 20 states that have some kind of data center incentive program in place.

Typically, this involves legislation that reduces the amount of so-called sales and use tax on the servers and other IT equipment housed inside data centers — equipment that EdgeCore’s Traugott said is generally valued at around $10M per megawatt. Generally, data center providers are required to meet certain benchmarks for employment and economic impact to be eligible. 

For hyperscale users that replace every piece of IT equipment in a data center every three to five years, that potential tax burden factors significantly in the development math for data center campuses that are increasingly measured in the hundreds of megawatts.

These tax abatement programs are effectively a prerequisite for large-scale data center development, panelists at DICE Rockies said. 

The AI arms race has further magnified the importance of these tax breaks, experts say, since the high-performance processors and other networking gear needed for AI computing are significantly more expensive than traditional servers.

“Look at [AI chipmaker] Nvidia and their pricing power right now — that cost per megawatt has doubled or tripled, and as the hardware costs go up so does the impact of not having a sales tax break,” EdgeCore’s Traugott said. “It's a competitive landscape across the entire U.S., so states that have a sales tax break in place are going to attract greater scale, and the impact gets magnified when the hardware gets more expensive.” 

Efforts to create data center tax incentives in Colorado have foundered. In March, state Sen. Janet Buckner introduced legislation that would have established a sales and use tax refund for data center purchases, but the bill died in committee without a vote. 

“It didn't garner the right level of support in the legislature,” Flexential Chief Operating Officer Ryan Mallory, a vocal proponent of the bill, said at DICE Rockies. “The primary focus point there was around water, and anybody who operates in the West knows that’s a main topic with any data center in any market in the Mountain West.”

This kind of tax regime will be necessary to spark hyperscale development, panelists at DICE Rockies said. They pointed to advantages Denver holds over other regional markets, from fiber density and a location along long-haul fiber lines to low power prices and local utilities that are actively engaged with the data center sector.  

For James Buie, CEO of colocation provider Involta, the Denver market represents something of a sleeping giant that the arrival of Big Tech could elevate to a top-tier digital infrastructure hub. 

“We need the tax incentives and if that comes together, I think the Denver market significantly changes in a big way where absorption rates could double,” he told DICE Rockies. “I'm not saying we're going to be a market like Dallas. But I think Denver, with its fiber richness, is a great market to be in for operators and technology companies that want to really grow in the West.”