‘There’s A Real Danger’: Looming Headwinds Threaten To Stop Atlanta’s Data Center Building Boom

Atlanta’s data center market is expanding at a faster clip than any other major U.S. city, but a dwindling power supply and a looming moratorium on key tax incentives could slam the breaks on Georgia’s data center building boom.

Since 2020, the greater Atlanta area has emerged as one of the country’s primary data center markets, with Big Tech cloud providers like Microsoft, Google and Amazon Web Services leading the charge to build or lease large-scale facilities in the region. The already-robust growth of Atlanta’s data center construction pipeline accelerated over the past year as power constraints in other major markets pushed the industry toward the greater Atlanta area.

But this frenetic pace of growth could be short lived, according to industry executives speaking last month at Bisnow’s DICE Southeast event at the JW Marriott Atlanta Buckhead.

The same power constraints that drove demand to the region are now hitting Atlanta. At the same time, state legislation that passed last month and is awaiting the governor's signature would pause targeted tax breaks for data centers that industry leaders call a prerequisite for any future development in the area. 

These dual headwinds could soon force data center developers and the world’s largest tech companies to look elsewhere, pushing the industry's record growth into new emerging hubs throughout the Southeast. 

“Atlanta is in a growth cycle, and I think there’s a real danger of putting the brakes on that,” Scott Willis, CEO of colocation data center firm DartPoints, said at DICE Southeast. “There's some very compelling geographical areas in pretty close proximity to Georgia that will be happy to be the catcher's mitt and pick this up.”

The Atlanta area’s data center development pipeline has grown by 211% since the start of 2023, making it the fastest-growing primary data center market in the country, according to CBRE. Atlanta is now the sixth-largest data center market in the U.S., with the recent development surge accelerating rapid growth that has seen the region’s data center inventory double since 2020. 

This record pipeline is being driven by demand from the major cloud providers and the third-party data center firms who lease to them. These companies aren’t just building more data centers near Atlanta, they’re building them bigger than ever. 

Among the projects in the works is Microsoft’s planned 350-acre campus in Rome, Georgia. In January, AWS acquired 430 acres for a campus in Covington. Developer DC Blox is building a 216-megawatt campus in Conyers, Georgia, while developer Stack Infrastructure has filed to build a pair of facilities in Lithia Springs. 

Significantly larger projects loom on the immediate horizon. A major hyperscaler is seeking to deploy four gigawatts in the Atlanta market, according to CBRE. At the DICE event, panelists reported two hyperscale tenants each looking for more than one gigawatt of capacity in the area, with a third looking to deploy 900 megawatts across three sites. 

“About three years ago we were looking at a request for four megawatts in Atlanta and that was a really, really big deal. Fast forward 12 months, and the four-megawatt deal seemed like a small deal and then the new standard was 10 megawatts, and then 12 months later that standard was a hundred megawatts,” DC Blox CEO Jeff Uphues said. “Now there's five or six huge customers that are dominating the demand landscape, and they all want hundreds of megawatts of power.”

A number of factors have driven the influx of data centers into Atlanta, among them the growing population and economic clout of the city and the Southeast as a whole, as well as a favorable tax environment — at least for now. But it is largely power constraints bedeviling other markets, particularly Virginia, that have been the catalyst for the development surge Atlanta has experienced over the past year.

Developers and tenants in the industry’s longtime hub in Northern Virginia learned in 2022 that it could be years before utilities could provide promised energy to some data center projects. With speed to market a priority to meet record demand, digital infrastructure providers began to descend on Atlanta due to its cheap, available power.  

“For years people have been wondering when Atlanta was going to pop, and I think it took Virginia running out of power for that to happen,” said Karlton Holston, executive vice president for digital infrastructure at Landmark Dividend. “Atlanta has always been primed to move from a secondary market to a primary market, it just took the push from Virginia.”

But now these same power problems are hitting Atlanta. 

Developable sites with immediate access to the massive amount of power data centers need have become rare near Atlanta, industry executives say, while utility Georgia Power has announced delays of up to three years on substation buildouts needed for new connections. It’s a power pinch that is rapidly becoming more acute as proposals for hyperscale projects flood into the market, with Georgia Power executives telling one DICE panelist that all the power produced by a recently commissioned nuclear power plant has effectively been spoken for by data centers alone. 

“The demand forecast, what people are asking the utilities for, is scaring every power company,” Uphues said. 

These emerging energy constraints are set to slow the pace of the industry’s expansion in Georgia in the near future. But public concern over data centers’ impact on the region’s power grid has spawned what industry leaders say is a more immediate threat to the market’s growth: the looming suspension of Georgia’s data center tax incentives. 

Last month, Georgia’s legislature approved a bill to place a moratorium on a program that allows data centers and their tenants to avoid paying sales and use tax on the billions of dollars of equipment housed in their facilities. The legislation would stop the state from approving new applications for the tax abatement program for at least two years while a commission studies the impact of data centers’ energy usage. Should Gov. Brian Kemp sign the bill into law in the coming weeks, the state will stop granting new exemptions in July. 

Eliminating these tax incentives would close the floodgates on new data center projects pouring into the Atlanta market, industry leaders said at the DICE event. They said the presence of this kind of state tax abatement program, offered in around 30 states on a statewide or local level, is a prerequisite for large-scale data center development. 

For major cloud providers and other Big Tech tenants, who can deploy as much as $4B worth of IT equipment at a single data center site and replace it every four to six years, avoiding 7% or 8% sales and use tax translates into hundreds of millions of dollars in cost reductions. As such, these tax abatements are high on the pecking order of considerations when it comes to site selection.

If incentives are no longer offered in Georgia, hyperscalers are willing and able to shift planned development to other markets, said Landmark Dividend’s Holston.  

“They're investing hundreds of millions of dollars into these sites, so if they feel they're being penalized here but get incentives in other markets, they're definitely going to move those deployments elsewhere,” he said. “It definitely moves the needle as they look at various markets.”

Just as Atlanta was a beneficiary of power constraints in Virginia, the headwinds facing Atlanta will likely push demand into emerging markets in the Southeast, panelists said. Nearby states like the Carolinas, Mississippi, Tennessee and Alabama have tax incentives meant to lure data center development. There’s already a significant hyperscale presence in cities like Nashville and Charlotte, with smaller emerging clusters in places like Huntsville, Alabama. 

Tech giants are also showing a growing willingness to site large-scale data center campuses in the Southeast far off the existing data center map. There’s a growing pipeline of massive projects in former data center hinterlands like Madison County, Mississippi, where AWS announced plans in January to spend $10B building a pair of campuses.

There are more options than ever when it comes to where data centers can be built, particularly in the Southeast. Experts say the developers and Big Tech tenants that have been flocking to Atlanta will go elsewhere the second the conditions that made the market a data center hotbed deteriorate. 

“You've got very favorable business conditions and a very hungry economic development engine surrounding Georgia. Places like South Carolina and North Carolina will be happy to pick this up,” DartPoints’ Willis said. “You've got some competition out there. Demand from these companies is not going to stop, they're just going to look for an alternative location.”