Data center developers are tweaking everything from their messaging to their designs while projects stall as backlash towards the facilities explodes across the Valley and the country.
While demand for capacity shows no sign of waning as the rush to create capacity for artificial intelligence – data center vacancy is at 1% nationally for the third year in a row – getting local communities on board is now the biggest obstacle for the industry, according to a new report from JLL.
More than 66 gigawatts of data center capacity are under construction in North America today, with about 2 gigawatts underway in Arizona, according to JLL’s report.
In Phoenix and neighboring cities, the entitlement process for new data centers is “infinitely harder” today than it was a year ago, according to Adam Baugh, partner at Withey Morris Baugh PLC, who counts data center developers among his clients.
Two major projects are currently facing delays just south of Phoenix in Pinal County.
Vermaland LLC’s La Osa Energy Center near the city of Eloy faced a last-minute wave of community opposition in May, pushing the firm to significantly reduce the project’s size. It’s now planning for an 11-building data center campus at a 3,300-acre site, instead of the 59-building campus originally proposed. That project will be back in the spotlight when it returns to the board for a vote at an August 26 meeting.
Project Midway, a proposed five-building, 1.25-million-square-foot data center campus on 215 acres also faces delays following a July 16 meeting. The county’s planning and zoning commission asked dozens of questions around power and the project’s potential impact on the grid before an attorney representing the developer asked for a continuance on the items indefinitely.
Today’s less-welcoming attitude from municipalities is a sharp shift from a few years back when cities touted new data centers as a massive economic development opportunity and helped to get those projects off the ground, according to Jay Kramer, a transactional real estate attorney at Fennemore.
Now many have adopted new zoning ordinances targeting data centers and restricting their development in certain areas. Gilbert is the latest working to adopt new rules.
Phoenix’s new ordinance drove a wave of Prop 207 claims from developers asking for waivers or compensation amid claims that the new zoning rules harmed their planned projects and property values. And just this month, the city of Casa Grande settled another case related to Prop 207 compensation claims.
If cities become too restrictive, the state may pass legislation overriding city ordinances, similar to what it did with middle housing, according to Kramer.
Data center developers need to approach the entitlement process much differently today, Baugh said.
“Setting up intentional, strategic communication models is the new standard going forward. No longer can you wait to see who responds and then react to it,” Baugh said.
Baugh suggests developers get proactive by setting up project websites and having early engagement with the community before even filing documents with the city.
Ultimately, they’ll need to provide clarity upfront on key concerns, like where the power is coming from and who is paying, how much water will be used, and what is being done to mitigate noise issues, Baugh said.
Another key component is explaining to cities and their residents the potential economic impact and benefit they could have for the community.
“I think what we’re not doing is a good job of informing how critical these data centers are to the day-to-day life of everyone,” said Mark Bauer, vice chairman within JLL’s Southwest Data Center Solutions group.