With limited supply and a race to secure capacity, data center users today have little leverage to demand sustainable options. However, as the pace of demand slows, occupiers and investors may increasingly prioritize sustainability in their leasing and acquisition decisions.
The NAIOP Research Foundation commissioned a new report, “Managing Sustainability Risk in Data Center Development,” authored by Jeremy Gabe, Ph.D., Capstone Advisors Endowed Professor of Real Estate at the University of San Diego (USD) Knauss School of Business; and Phil Isaak, PE, P.Eng., DCDC, RCDD, SMIEE, data center infrastructure engineer and program/project manager; to examine best practices and emerging concerns in sustainable data center development.
The report identified five major sustainability concerns that developers and investors should plan for in a five- to 10-year investment horizon to maintain market competitiveness:
- Physical risk resilience
- Energy efficiency
- Community integration and engagement
- Decarbonization
- Conversion from air-cooled to liquid-cooled ITE
Industry standards (like the ANSI/BICSI 002 Data Center Design and Implementation Best Practices standard) provide developers with a way to evaluate and mitigate potential losses from physical risks. Forward-looking developers also consider risks facing supporting infrastructure. For example, how secure is access for employees or the transport of diesel fuel to the site in the event of a long-term power outage? How resilient is the supporting fiber network?
Common lease structures provide significant financial incentives for owners of data centers to invest in improving operational energy efficiency (thereby reducing carbon emissions and costs from inefficiencies). The report details several examples of design and operational methods that can be used to improve energy efficiency, including high-efficiency transformers and automating cooling systems.
While most developers are aware of the importance of community integration and engagement throughout a project, data centers bring new concerns that must be addressed to secure entitlements and access to water and grid electricity. Newer developments are mitigating noise and the loss of open space through engineering and boundary landscaping. Developers can address electricity cost concerns by investing in new capacity. Tax incentives are growing scarcer for new data center development in response to public opposition, but developers can still earn community goodwill by demonstrating how a project will contribute to the local economy and tax revenues.
Developers can invest in on-site gas generation today while planning for decarbonization over the medium term by contracting with hydrogen fuel cell or small modular nuclear reactor providers, or by preparing for the capability to install carbon sequestration. For more immediate decarbonization, data center owners and occupants can invest in off-site clean energy, usually via a power purchase agreement (PPA), although clean energy PPAs are expected to become less plentiful and more costly over the coming years.
New data centers are increasingly being built out with liquid-cooled IT equipment, which is more energy-efficient than air-cooled equipment and is often required for state-of-the-art chipsets.
Data center developers that proactively address these sustainability risks will be well positioned to weather the risk of a slower data center market and the possibility of future local, state or federal regulations on their associated carbon emissions.
