Va.’s data center industry provided $4.5B in economic output in 2018

In 2018, Virginia’s data center industry directly provided approximately $4.5 billion in economic output and employed more than 14,000 people, according to a study released Wednesday commissioned by the Northern Virginia Technology Council’s Data Center and Cloud Committee.

Despite the economic impact, however, Virginia’s data center incentive structure is one of the most restrictive in the U.S, the study found.

Although Northern Virginia is touted for its high concentration of data centers (1,027.9 megawatts of power capacity) the study states that Central Virginia and Hampton Roads each account for almost 10% of overall data center industry employment in Virginia. However, Northern Virginia’s data center market has grown the most in the past year — 22% of Northern Virginia’s total data center capacity was added during the second half of 2018 and the first half of 2019, according to the study, which was prepared by Henrico County-based Magnum Economics. 

In terms of employment, Northern Virginia carries 75% of data center employment, with Central Virginia and Hampton Roads tied at 9%, followed by Southern Virginia at 4%, the Shenandoah Valley at 2% and Southwest Virginia trailing behind at 1%. A. Fletcher Mangum, founder and CEO of Mangum Economics, said during a presentation Wednesday at law firm McGuireWoods’ Richmond headquarters that the lack of both infrastructure and employment connected to data centers is due in great part to Southwest Virginia’s terrain.

Central Virginia data centers generated 1,275 jobs and more than $341 million in economic impact, according to the study, while data centers in Hampton Roads provided 1,322 jobs and $329 million in economic impact. Northern Virginia accounted for approximately 77% of the total $4.5 billion impact of data centers across the commonwealth.

Despite the economic impact, however, data centers face higher barriers for earning state tax incentives, including a sales and use tax exemption. According to the study, a data center has to invest at least $150 million, add 50 new jobs to the local economy and pay 50% more than the average annual wage in the locality in order to earn the tax exemption. Virginia is one of few states with such a high threshold for such tax incentives, according to the study.

In fiscal year 2018, eligible data centers in Virginia received $86 million in sales and use tax exemptions.

Such tax incentives have kept major data center players here, including Microsoft Corp, and Facebook Inc. Mangum explained during the presentation Wednesday. Once fiber cables are installed in concentrated areas, there is more incentive and capability to build additional data centers in close proximity, he said.

Northern Virginia Technology Council’s Data Center and Cloud Committee promotes the interests of Northern Virginia’s data center, cloud and infrastructure community. Data for the study was supplied by the Loudoun County Department of Economic Development, the Prince William County Department of Economic Development and the Virginia Economic Development Partnership.