There is no shortage of CRE pundits who have proclaimed that investment in data centers is the wave of the future. However, a debate over how massive data centers impact state revenues, the electric grid, and communities has broken into the open in the Georgia legislature. It illustrates the challenges states may face in balancing new economic development opportunities data centers can create with their costs.
In Georgia, which has recently seen a flood of announcements of new data centers to be built, House Speaker Jon Burns has announced the creation of a special committee to develop a state resource plan that will include managing the impact of the data centers flooding into the state.
The Speaker’s decision is remarkable because it follows a veto last year by Georgia Governor Brian Kemp of a bill passed by both the Georgia House and Senate to suspend previously authorized new sales and use tax exemptions for data centers and to establish a special commission on data center energy planning.
The Speaker insisted the new strategy was not aimed specifically at data centers. “This is not about any one component of economic development,” he said. It would be a well-thought-out plan analyzing state energy usage, water usage, and taking into account sustainability. “We won’t leave a stone unturned,” he promised.
A string of recent announcements demonstrates the explosion of the data center sector in Georgia. In July, it was revealed that Microsoft plans a 2.1 million square feet campus in metro Atlanta, a $1.8 billion investment with a 324-megawatt power capacity. On January 7, Amazon announced it would add $11 billion in new data centers capacity in Butts and Douglas counties near Atlanta. A week earlier, a Georgia-based company, Atlas Development, LLC, filed plans – not yet officially approved – for Project Sail, a $17 billion data center to be completed by 2036. As of April 2022, Georgia was estimated to have more than 50 major data centers, most in close-in metro Atlanta counties.
Indeed, in the first half of 2024, the Atlanta metro area had more data center energy capacity under construction than any other primary market in the nation -- 1289.1 megawatts – to add to its existing inventory of 310 megawatts, according to data from CBRE. That was a 76% increase over the prior year. The only region that ranked higher was Northern Virginia, with 1157 MW under construction and an existing stock of 2611.1 MW.
Once this would have been considered an unqualified economic benefit for Georgia. Like many other states, it has offered substantial tax incentives to attract data centers. But the sheer number and scale of data center development announcements, especially toward the end of 2024, have driven some state legislators to question that assumption.
One reason is the enormous water requirements needed to generate the electricity data centers need to operate, as well as to cool servers and other data center equipment.
In addition, the data centers’ energy demands will require significant new investment including by utility provider Georgia Power’s customers in the form of higher rates. Georgia Power has predicted that energy demand from new projects – primarily data center customers -- will triple its power load requirements by the mid-2030s from 12,200 MWs to 36,500 MWs. According to CBRE, developers have requested 23,000 MWs in additional capacity from the local utility company to accommodate new data center projects.
Environmental groups in Georgia note that the additional energy will be generated by increased reliance on fossil fuels that will harm air quality and raise carbon emissions, as well as renewables.
Finally, there is considerable skepticism about whether the promised economic benefits of data centers will pan out, especially as a return on the investment from the incentives they have been offered to invest in Georgia. Subsidies for data centers nationwide often include sales and use tax exemptions on purchases of hardware and software, as well as full or partial exemptions from property taxes. There are also concerns about how many tax dollars local governments are giving up for the relatively small number of jobs data centers create.
Georgia is not the only state wrestling with these challenges. According to the non-profit publication Stateline, South Carolina is studying whether incentives are justified, and Virginia is examining the impact of data centers on electric reliability and affordability.
In March 2023, Ohio utility AEP Ohio itself placed a moratorium on new data center service agreements to ensure that its electrical grid would not be overwhelmed. In October 2024, AEP filed a settlement agreement that requires large new data center customers to pay for a minimum of 85% of the energy they say they need each month – even if they use less – to cover the cost of infrastructure needed to bring electricity to those facilities. The centers must also show they are financially viable.
Whether data center developers will be deterred is open to question.
There is no shortage of pundits predicting that data centers are CRE's future destiny. A recent report on emerging trends in real estate by PwC and the Urban Land Institute said data centers are on a path to being one of the largest property types in the country over the next 10 years. It called the trend inescapable.
According to Cushman & Wakefield, demand for new data centers has outstripped the stock available because developers are having difficulty finding adequate supplies of vital inputs like power and other key components.
The report of Georgia’s special committee – and whether the state legislature acts on it – could provide a road map for the future.