Major Data Center Firms Call Denver Home, But Most Won't Build In Their Own Backyard

Some of the world’s most prominent data center companies are headquartered in Denver, but they see hurdles in their home state that have prevented them from turning Colorado into a hotspot for data center construction. 

In some ways, Denver is a critical nerve center of the data center industry. The Mile High City is a hub of data center leadership, with seven of the world’s largest data center developers and operators headquartered in the area. Only Dallas, a far larger city, is home to more data center companies, and only by a narrow margin.

Denver-based firms like CoreSite, Vantage Data Centers, Flexential and Stack Infrastructure have helped lead the data center building boom and seen their valuations swell in the process.  

But while Denver may be a capital of data center decision-making, it is a relative backwater when it comes to the development of data centers themselves. The area barely registered in an analysis of top data center markets published last month by brokerage JLL. Its 105 megawatts of total inventory ranked at the bottom of the 16 markets measured. By comparison, the Northern Virginia data center market is nearly 44 times bigger.

Data center development has remained stagnant in Denver despite exploding elsewhere in the Rockies and across the U.S. as a whole. Emerging Mountain West data center markets like Salt Lake City, Nevada and Arizona have seen capacity triple since 2020, while Denver has grown slower than all but two other markets nationwide, according to JLL. Denver has seen almost nothing in the way of the large scale data center campuses, with hundreds of megawatts of capacity that have driven the bulk of the industry’s growth over the past 24 months. 

Colorado’s failure to launch as a digital infrastructure development hotbed remains a significant source of frustration for Denver-based data center leaders, many of whom gathered at Bisnow’s DICE: Rockies event last month at the Grand Hyatt Denver.

The region has many of the characteristics developers and tenants are looking for, according to Brian Cox, CEO of Denver-based data center firm STACK Infrastructure and previously a longtime leader of Denver-based Cologix.

But Cox says the state’s lack of a critical data center tax break, along with a range of environmental factors, make even Colorado’s hometown data center firms hesitant to build in their own backyard.  

“I'm proud to have started two different data center companies here, and we continue to look for the investment thesis that makes Colorado make sense, but that’s been a struggle,” Cox said. “We haven't gotten there, and there’s a lot of reasons for that.”

But Cox and others at the event said there are many reasons why Denver and Colorado as a whole should be tantalizing to data center developers and tenants. The market offers robust optical fiber infrastructure and close proximity to a growing number of technology and AI firms in the Denver area with significant computing needs - key considerations for both data center developers and the cloud providers who are the industry’s biggest tenants. 

Most importantly, Colorado has power. Amid a nationwide data center building boom, surging electricity demand from these facilities is driving increasingly acute power constraints in the largest digital infrastructure markets. Projects in industry hubs like Northern Virginia and Columbus, Ohio, must now wait a minimum of six or seven years to be connected to the power grid — far too long to meet the needs of Big Tech tenants embroiled in an AI infrastructure arms race. 

Because of these power shortages, developers are now willing to build new facilities wherever power is available quickly, exploring markets that no tenant would have considered just two years ago. Colorado offers exactly the kind of energy landscape developers are looking for, executives said at the event: an abundance of reliable, affordable power, with strong opportunities for renewable energy and a pathway to significantly expanded power generation. 

“The potential is so great,” said David Dunn, chief operating officer of Denver-based H5 Data Centers. “Colorado has such great energy generation potential through wind, solar, natural gas, as well as proximity to coal in Wyoming — it’s unparalleled in the United States to have that.”

The primary reason industry leaders gave for why Denver hasn't attracted large-scale data center developments was taxes, specifically Colorado’s lack of a targeted sales-and-use tax exemption for data centers. 

State-level programs that limit the tax liability on equipment housed in data centers can be worth billions to the largest data center users. Offered by 32 states, these incentives have effectively become a requirement when it comes to where major tech companies choose to build or lease facilities. The importance of these programs to end users has grown further as the need for Nvidia processors and other high-performance equipment for AI drives up the potential tax burden. 

Of the states bordering Colorado, only New Mexico does not have a sales and use tax exemption, while other Mountain West states like Nevada and Idaho have enacted similar programs. But efforts to create these tax breaks in Colorado last year failed to clear the state legislature. As a result, developers say, firms looking to build large-scale projects in the Rockies are almost universally looking elsewhere. 

“A key factor for us when we do our initial investigation of any market or region that we want to participate in is sales and use tax rates, and Colorado in general and Denver specifically doesn't have a competitive tax rate right now,” said Kevin Mammel, chief financial officer at Rowan Digital Infrastructure. “For that reason, Denver and Colorado rank very low on our list of priorities.”

Developers also pointed to environmental concerns that could complicate potential data center developments. 

According to Cox, Denver is contending with potential water shortages at a time when the advanced processors needed for AI are driving up the amount of water many data centers have to use for cooling. At least in the short term, this makes Denver and data centers a bad fit from a sustainability standpoint, Cox says.  

Denver’s poor air quality is also a barrier to large-scale data center projects, added Jocelyn McCaslin, vice president of sales and leasing at Corescale Data Centers. The EPA has classified large sections of the Denver area as being out of compliance with its air quality standards for years, mandating that state and local governments enact stricter emission rules to bring airborne pollution levels within federal limits. 

EPA air quality status is becoming a significant factor in site selection for developers in markets like Denver and Dallas due to concerns over the ability of data center operators to generate power on-site, as Bisnow has reported previously. Data centers need backup generators, and strict limits on emissions can be a dealbreaker for large facilities that would have hundreds of megawatts of diesel or natural gas backup generators on site that are tested frequently and could potentially be run for long periods of time.

According to McCaslin, emissions restrictions in large swaths of the Denver area would prevent Corescale from deploying the backup power generation needed to build a facility big enough to make sense for the company’s hyperscale-oriented business model. It’s an issue she believes makes Denver a non-starter for a number of other developers and their investors.

“We've looked at this market a few times, and one of the main things that we're waiting to see is what happens with the EPA,” said McCaslin. “Right now, there really isn't an opportunity in the larger Denver metro area to build larger than about 120 megawatts. That may be great for some players, but our minimum site is typically about 300 megawatts.”

“We’ve looked at it and tried to figure it out, but there’s just a lot of unknowns and regulatory concerns.”