“The world has become increasingly digital, a trend that has only accelerated during the pandemic, and consequently data centers are becoming a more prominent segment of industrial real estate,” says CommercialEdge. That digitization could increase under the Biden administration’s proposed infrastructure package, with implications not only for data center demand but also for development. 

Currently moving through Congress, the Infrastructure Investment and Jobs Act, if it becomes law, would have a “massive impact” on data center demand by increasing the number of broadband users nationwide, CommercialEdge says.  

Among its allocations, $65 billion is targeted at closing the “digital divide” that keeps 10% of Americans, mainly in rural areas, from accessing broadband internet. The bill also includes a subsidy for low-income Americans to pay for high-speed internet.  

“Currently, 77% of American adults have access to broadband at home, according to Pew Research,” CommercialEdge reports. “A concerted effort to provide broadband to the remaining 23% would accelerate data center demand growth.”   

The U.S. data center sector is highly clustered, with more than half of all square footage located in just seven markets: Washington DC–Northern Virginia, Dallas–Fort Worth, Chicago, the Bay Area, New Jersey, Phoenix and Atlanta. However, says CommercialEdge, “that could change over the course of this decade due to the Infrastructure Investment and Jobs Act.  

“Projects delineated in the bill include building out fiber optic networks across the country as well as expanding energy grids and increasing the capacity of renewable energy. Combined, this could open up many new markets for data centers. 

CommercialEdge data also show the “gigantic” premium data centers command in the transaction market. The average sale price of a data center in 2021 is $319 per square foot, or 195% higher than the $108 average sale price for industrial overall.  

The Yardi unit’s report notes that the environmental impact of data centers is a growing concern. “Renewable energy cannot solve every challenge, such as the massive amount of water needed for cooling,” the report states.  

The issue is especially acute in the Phoenix metro area, where water resources are scarce and data center activity is exploding. A total of 28 data center pipeline projects are located in Phoenix, with five currently under construction, eight planned and 15 prospective properties.  

Recently, Facebook announced plans for a 960,000-square-foot data center in Mesa, “alarming locals and elected officials over reports that the building could use a million gallons of water a day,” says CommercialEdge says. ”Facebook has pledged three water projects it says will restore more water than the data center uses, while the center will use 60% less water than the typical such structure. While this may alleviate concerns for the building, water will be front and center for future Phoenix projects.”