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Decoding Factors Driving the Data Center Industry’s Strategic Site Selection

The National Data Center Fund (“NDCF”) by National Real Estate Advisors is a commingled, open-end investment fund tailored for institutional investors seeking to invest in data centers. Through NDCF’s majority ownership of Sabey Data Centers (“SDC”), a data center company based in the U.S., investors can access a portfolio of properties and potential developments. SDC, in an exclusive partnership with National, handles development and operation.

Drawing from our analysis and industry expertise, it is clear to us that successful data centers are underpinned by a meticulous site selection process driven by a multitude of factors. From connectivity and power infrastructure to geographic considerations and economic landscapes, understanding the intricacies of this selection process can provide insights into how operators and developers navigate the complexities of establishing their data center investments.

Connectivity & The Hyperscaler “Halo Effect”

In addition to demonstrated power accessibility, the ideal data center location typically requires robust connectivity, ensuring minimal latency and optimal performance for users accessing cloud services. We have observed that the regional density of cloud infrastructure can serve as a litmus test for a site’s suitability for future development. Areas with a dense concentration of cloud infrastructure often indicate robust connectivity and a thriving digital ecosystem. Regions with concentrated hyperscale investment density can create a “halo effect,” boosting leasing opportunities for data center sites and enhancing the overall attractiveness of investments located within range.

The map below illustrates the concentration of cloud infrastructure across various regions in the U.S., highlighting significant investments by major cloud service providers, particularly in the Pacific Northwest, Northern Virginia, and Silicon Valley. It also underscores the rapid growth of emerging markets to meet the rapidly growing demand for data processing and storage.

Density of Hyperscale Cloud Infrastructure in the United States

Circle size based on the level of market presence and size of operation from AWS, Microsoft Azure, Oracle, Google, IBM, Alibaba, and/or Tencent.

Source: TeleGeography Cloud Infrastructure Map

Power Infrastructure

With the surge in demand for AI-driven products, cloud services, and data processing, data center operators have an incentive to prioritize locations with reliable and cost-effective power sources to meet their escalating needs. Additionally, sustainability has emerged as a critical consideration in site selection, potentially lowering the total cost of occupancy for tenants and aligning with industry-wide efforts toward energy efficiency and environmental stewardship.

Geographic Considerations

Geographic factors also play a significant role across the industry in site selection. Selecting areas with moderate climates and minimal environmental threats can help mitigate risks to infrastructure, avoid downtime, and minimize cooling costs. Additionally, ample space to accommodate expanding infrastructure will allow for long-term scalability and growth.

Politics & Economics

Political and economic landscapes can also considerably impact data center operations. Stability in regulatory environments and favorable economic conditions attract investment, fostering an environment conducive to growth and innovation.

In conclusion, we believe that the discernible trends summarized here explain why the largest data center markets in the country have become focus areas for the industry. Select secondary markets can benefit from the same factors that create optimal site conditions and may find themselves on the shortlist of markets to watch. By leveraging these elements, operators and developers can navigate complexities in order to seize emerging opportunities. Strategic site selection remains pivotal for success in this evolving digital landscape.

Contact us to learn more about our site selection strategy as well as our commingled, open-end real estate investment fund, National Data Center Fund (“NDCF”), which offers institutional investors concentrated exposure to data centers.


This is not an offering or the solicitation of an offer to purchase an interest in NDCF. Any such offer or solicitation will be made to qualified investors only by means of a final offering memorandum and only in those jurisdictions where permitted by law.

The reader should not assume an investment in NDCF will be profitable. Past performance does not indicate, predict, or guarantee future results. All investments involve the risk of loss of invested capital.