In today’s hyper-connected world, data centers have become the backbone of countless industries, powering everything from artificial intelligence (AI) and cloud computing to financial systems and social media platforms. However, the rapid buildout of data center capacity worldwide has brought a critical question to the forefront: where should these data centers be built? This decision is no longer as simple as finding available land; it’s a complex process influenced by multiple factors and regional dynamics.
This article explores the five essential pillars of data center siting, offers insights into the global competition for hosting these pivotal facilities, and examines how different regions are adapting to the growing demand for advanced digital infrastructure.
As of now, there are nearly 23 gigawatts of new data center capacity under construction worldwide, representing more than a third of today’s installed computing base. This unprecedented growth is fueled by the explosion of AI and cloud workloads. However, deciding where to build data centers has grown increasingly complex due to evolving constraints such as energy availability, permitting challenges, and regional demand for AI-driven infrastructure.
This complexity is especially relevant for mission-critical industries like data centers, nuclear power, defense-tech, and power generation. For decision-makers operating in these sectors, understanding the factors behind data center siting is crucial for aligning their business strategies with the next phase of digital transformation.
Through extensive research and conversations with developers, industry experts have identified five fundamental factors that determine the suitability of a location for new data centers:
Energy is the most critical factor for data center siting. Data centers are incredibly energy-intensive, particularly those supporting AI workloads, which are referred to as "power-constrained" facilities. Developers prioritize areas with access to large, reliable grid connections capable of delivering significant power volumes quickly. Without consistent energy availability, other advantages of a site become irrelevant.
Land availability and the ease of obtaining permits are essential for ensuring timely construction. A region may have abundant energy, but if permitting processes are slow or restrictive, it negates the benefits. In contrast, markets with streamlined permitting processes are better positioned to attract developers.
Tax regimes historically played a key role in attracting data center investment. While still a factor, they have become less critical in recent years as energy and land availability take precedence. Nonetheless, regions offering tax incentives continue to gain a competitive edge, particularly when coupled with other favorable conditions.
The proximity to existing fiber networks and internet exchange points is vital for latency-sensitive applications like enterprise communication. While AI-focused data centers are less reliant on low-latency connections, markets with robust fiber infrastructure remain attractive.
The presence of operational data centers is a strong indicator of a region’s capability to build and support new facilities. Regions with established ecosystems benefit from available expertise, skilled labor, and proven demand. This "incumbency advantage" creates a reinforcing cycle, drawing more investment over time.
Unsurprisingly, two U.S. states - Virginia and Texas - dominate the global data center landscape. These states offer a combination of natural advantages and established ecosystems that make them unparalleled in the industry.
Virginia hosts over 11% of the global live data center capacity. Its dominance stems from historical factors, such as being home to one of the earliest internet exchange points. Generous tax incentives, geographic proximity to the U.S. East Coast, and undersea cables connecting it to Europe further enhance its appeal.
Texas excels in providing abundant land and cheap energy, making it an ideal destination for power-hungry AI-focused data centers. The state’s infrastructure has already proven its capability by supporting cryptocurrency mining and now aims to lead the AI revolution.
While Virginia and Texas remain benchmarks, other regions are positioning themselves to capture the next wave of investment in data centers. These markets offer unique opportunities and challenges, making them worth watching closely.
Saudi Arabia and the UAE leverage their vast land availability, relatively straightforward permitting processes, and access to inexpensive energy. However, geopolitical risks and trade restrictions could hinder long-term development. These countries are also prioritizing "sovereign AI" as part of their national strategies, which involves building domestic AI infrastructure to reduce reliance on global technology giants.
Brazil is already a key regional fiber hub, routing significant internet traffic for Latin America. With a young, tech-savvy population and rising domestic demand for digital services, Brazil is set to benefit from its strong growth potential. However, much of the current pipeline is tied to two massive speculative projects, creating uncertainty.
France is emerging as a dual-purpose data center destination, capable of supporting both traditional cloud compute and cutting-edge AI workloads. Abundant nuclear power supplies ensure energy availability, while government-backed initiatives and private sector investments are helping to develop large-scale projects. France’s "powered land" approach, which pre-packages land with grid connections, is particularly appealing to developers.
Europe presents a mixed picture, with traditional hubs struggling to meet demand and emerging markets stepping up.
The FLAP-D (Frankfurt, London, Amsterdam, Paris, Dublin) markets have long been the backbone of Europe’s data center infrastructure. However, challenges like limited energy availability, strict permitting regulations, and public opposition are slowing growth in these areas.
The Nordics (Sweden, Finland, Norway) and Iberia (Spain, Portugal) are becoming attractive for AI-focused data centers. These regions benefit from abundant renewable energy (hydro and solar in particular) and relatively easier permitting. Spain’s innovative model of pairing data centers with solar farms, enabled by its 2020 Royal Decree, exemplifies how policy can unlock new opportunities.
The growing emphasis on "sovereign AI" parallels historical energy security concerns. Just as countries sought to reduce dependence on foreign energy sources, many are now investing in domestic AI capabilities to maintain technological sovereignty. This trend is particularly evident in the Middle East, Europe, and South America, where governments are actively fostering local data center development.
The race to build the next generation of data centers is reshaping global infrastructure and creating new opportunities for innovation. While Virginia and Texas remain dominant, emerging markets in the Middle East, South America, and Europe are poised to challenge their supremacy. By understanding the factors influencing data center siting, decision-makers in mission-critical industries can better position themselves to thrive in this rapidly evolving landscape.
As this sector continues to grow, the interplay of energy availability, permitting, taxation, and technology will determine which regions emerge as the new powerhouses of the digital age. The next few years will be transformative, and the choices made today will shape the global digital infrastructure for decades to come.
Source: "What Really Determines Where Data Centers Get Built | Switched On" - Bloomberg Podcasts, YouTube, Feb 25, 2026 - https://www.youtube.com/watch?v=8PwA3yQ_gaM
