Data center development is the end-to-end process of planning, siting, financing, and constructing the specialized facilities that house computing and networking equipment at scale. It differs from conventional commercial development in that the building is secondary to the power, cooling, and redundancy systems it exists to support, and a project’s viability is decided less by land cost and rents than by how much electrical power a site can secure and on what timeline. The sections below cover the site selection criteria that drive those decisions and how a data center project moves from power procurement through commissioning.
Data center development is among the most capital-intensive and technically specialized segments of commercial construction, a sector whose growth has accelerated dramatically as artificial intelligence infrastructure buildout has created demand for data center capacity that outpaces available supply in every major U.S. market. The AI inference and training workloads that major technology companies are deploying require data center facilities with power densities, cooling capacities, and redundancy levels that were at the frontier of data center design two years ago and are now the competitive baseline.
Developers and construction teams entering data center development from conventional commercial real estate backgrounds consistently underestimate how different data center construction is from every other building type. The construction is not primarily a building problem; it is a mechanical and electrical engineering problem that happens to require a building envelope.
Power: The Foundational Constraint
The first question in data center site selection is not location, not land cost, and not construction cost. It is power: how much utility power is available, at what cost, and on what timeline?
A hyperscale data center campus, the large-scale facilities that cloud providers and AI companies are developing, may require 100 to 500 megawatts of utility power. Most single sites cannot access that power without transmission infrastructure investment that takes years to permit and construct. The competition for large-scale power availability near major data center markets, Phoenix, Dallas, Denver, Northern Virginia, has been intense enough to drive projects to secondary markets where grid capacity is available even though the market is less established.
For the more modest enterprise and colocation data centers that regional developers build, facilities in the 5 to 50 megawatt range, power availability is still the critical site selection criterion but is more broadly available in established markets. Sites near high-voltage transmission infrastructure, near utility substations with available capacity, and in jurisdictions that have demonstrated the permitting capability to approve new electrical service on reasonable timelines are the candidates that survive site selection.
Power cost per kilowatt-hour is the second power variable. Data centers that operate at high utilization rates (which all commercial data centers target) have enormous ongoing electricity bills. The difference between electricity at $0.04 per kWh (available in some Texas markets with access to competitive ERCOT wholesale power) and $0.08 per kWh (closer to retail rates in regulated markets) is a difference of millions of dollars per year at scale. Operators optimize their siting decisions in part around long-term electricity cost expectations.
Data Center Site Selection Criteria
Power is the gating criterion, but a site that clears the power test still has to satisfy a set of secondary criteria before it is viable. The factors that drive data center site selection, after power availability and cost:
Fiber connectivity and latency. A data center is only useful if it can move data to and from the networks its tenants serve. Sites are evaluated for proximity to multiple fiber routes and carriers, so that connectivity is both high-capacity and redundant, and for network latency to the population centers or cloud regions the facility is meant to serve. Latency-sensitive workloads push facilities closer to users, while workloads that are not latency-sensitive can locate wherever power is cheapest and most available.
Land and room to expand. Data centers need level, well-drained sites large enough for the building, the electrical and generator yards, cooling equipment, security setbacks, and often a second or third phase of expansion. Developers favor sites that allow the campus to grow, because the economics improve when additional capacity can be added next to existing power and fiber infrastructure.
Water for cooling. Water-cooled and evaporative cooling designs consume significant water, so water availability and the cost and permitting of that water supply are site selection factors for those designs. In water-constrained regions this can be decisive, and it is one reason air-cooled and economizer-based designs are favored in arid markets.
Zoning, permitting, and climate. The site must be zoned for the use or be a realistic candidate for rezoning, and the jurisdiction’s permitting posture toward large industrial power and water loads matters as much as the zoning map. Climate affects operating cost directly: cooler, drier climates allow more hours of economizer cooling each year and reduce the mechanical cooling load. Developers weigh these alongside natural-hazard exposure such as seismic, flood, and wildfire risk.
Development Phasing
Data center development generally proceeds through a recognizable sequence, though the boundaries between phases vary by project. Early phases establish whether the project is viable at all: securing a power commitment from the utility, confirming fiber and water, and completing the site diligence and entitlement work. Design and procurement follow, with long-lead electrical and mechanical equipment ordered well ahead of need because delivery timelines for major gear can govern the overall schedule. Construction builds the shell and the electrical and cooling infrastructure in parallel, and the project closes with an extended commissioning phase that verifies each system and then the integrated facility under simulated load before computing equipment is accepted. Because precise durations and capacities are project-specific, developers should confirm utility, equipment, and commissioning timelines with the actual providers rather than relying on generic benchmarks.
Cooling: The MEP Problem That Dominates Design
The heat generated by computing equipment, servers, networking gear, and power conversion equipment, must be continuously removed from the data center to maintain operating temperatures within the range that equipment can function reliably. The cooling system is the most technically complex and most capital-intensive MEP system in data center construction.
Cooling approaches have diversified significantly as computing density has increased. Traditional air cooling, computer room air conditioning (CRAC) units that circulate chilled air through the raised floor plenum under server racks, is adequate for lower-density computing environments but cannot keep up with the heat output of modern GPU clusters running AI workloads. Higher-density cooling approaches now in active use:
Air economization. In markets with adequate cool-air days per year, the Pacific Northwest and northern Colorado are examples, data centers can use outdoor air for cooling for a significant portion of the year, reducing or eliminating mechanical refrigeration during those periods. Air economization reduces operating cost substantially in appropriate climates.
Liquid cooling. Direct liquid cooling, water or dielectric fluid circulated through the server rack or in contact with the computing components, removes heat far more efficiently than air and is increasingly required for AI training clusters whose density exceeds what air cooling can manage. Liquid cooling infrastructure requires more complex plumbing within the data hall, specialized distribution units at each rack, and leak detection systems that prevent coolant from damaging computing equipment.
Redundancy and Critical Systems
Data centers are classified by their redundancy architecture, the degree to which critical systems (power, cooling, network) are backed up such that a single component failure does not interrupt operations. The Uptime Institute’s Tier classification system is the most widely referenced:
Tier I (basic capacity) has no redundancy, a single failure can interrupt service. Tier II has partial redundancy. Tier III is concurrently maintainable, any component can be serviced without interrupting operations. Tier IV is fault tolerant, a single failure of any component does not interrupt operations. Most commercial colocation and enterprise data centers are designed to Tier III or Tier IV standards.
The redundancy level drives construction cost directly. A Tier III data center requires N+1 redundancy in all critical systems, for every component required to support operations, one additional component is installed. A Tier IV data center requires 2N redundancy, two complete, independent systems for each critical function. The difference in construction cost between a Tier II and a Tier IV facility for the same computing capacity is substantial, often 40% to 60% higher for the Tier IV facility.
Construction Management for Data Centers
Data center construction management requires specific technical knowledge that conventional commercial construction managers don’t carry. The electrical scope in particular, covered in our guide to data center electrical infrastructure, is where most of the cost and schedule risk concentrates, and the leasing model behind the project, build-to-suit vs wholesale data centers, shapes how that risk is allocated among owner, tenant, and lender. The sequencing of MEP installation is more complex than conventional commercial construction; the testing and commissioning process is more extensive; and the consequences of installation errors are more severe because deficiencies discovered after computing equipment is installed can require destructive investigation and remediation in a live facility.
Critical path items unique to data center construction: utility power delivery timeline (which can be on the critical path if substation construction is required); electrical infrastructure installation and testing (which must be completed and commissioned before any computing equipment can be energized); and cooling system commissioning and performance testing (which verifies that the cooling system can maintain design temperatures under simulated computing load before the facility accepts equipment from tenants or operators).
Innergy Integral provides these services in Seattle, WA and across our six-state footprint.
Common questions
What is data center development? Data center development is the end-to-end process of planning, siting, financing, and constructing the specialized facilities that house computing and networking equipment at scale. Unlike conventional commercial development, the building itself is secondary to the power, cooling, and redundancy systems it exists to support, and a project’s viability turns largely on how much electrical power a site can secure and on what timeline.
What are data center site selection criteria? The primary criterion is power: how much utility power is available, at what cost, and on what timeline. Beyond power, the main criteria are fiber connectivity and network latency, available land with room to expand, water availability for cooling in water-cooled designs, favorable zoning and permitting, and climate, since cooler climates allow more hours of economizer cooling. Power availability typically decides which sites survive screening before the other factors are weighed.
What makes data center construction different from other commercial construction? Data center construction is primarily a mechanical and electrical engineering problem that happens to require a building envelope. The power distribution, cooling, and backup generation systems carry most of the cost and nearly all of the operational risk, the redundancy architecture drives both design and budget, and the testing and commissioning process is far more extensive than in conventional commercial work because the facility must prove it can carry its design load before it goes into service.
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