California Emerging As Data Center Fallback Market Amid Nationwide Opposition

With pushback against data centers growing across the country, developers and tenants are giving California a second look, according to a report JLL published in August. 

Although the state’s hurdles persist, including expensive energy, power and land, growing resistance elsewhere makes it look like less of a challenge. 

“Traditionally, LA, Southern California and California as a whole, outside of the Bay Area, has been looked at as a secondary market, primarily due to the cost of power, cost of land, the barriers to entry — all the regulations and legislation that’s involved with getting a data center approved,” JLL Senior Managing Director Darren Eades said. 

Data center developers used to look to neighboring Nevada, Utah and Arizona instead, but now those areas are either out of power or facing resident pushback to new projects, Eades said. 

“All these groups need to find a home, and they’ve come back to California saying, ‘Well, pricing is really not as important. It’s the demand, and we need to fill that demand right away,’” Eades said. 

Developers are tying up land and starting the process to build these projects, and some have gotten far enough along in their projects to tell the public about them. A couple of groups will soon announce “their first significant deployments” in Southern California, Eades said, although he declined to identify the companies involved. 

There is also a potential change in where these projects could be headed. JLL found that at least one haven for data centers in Southern California may be slowing down temporarily. Vernon, a small industrial city southeast of Los Angeles, had been a popular spot for these projects, thanks to its business-friendly attitude and relatively small residential population, which made pushback a nonissue. Vernon also has its own power utility.

But recent announcements for data center projects in the city will push it to capacity, and it is now hurrying to expand its infrastructure so it can take on new projects, JLL said. A representative for the city of Vernon didn’t immediately respond to a request for comment. 

With more eyes on California and a friendly city in SoCal potentially out of the running for a bit, more cities are likely fielding proposals from data center developers. 

JLL said there are some “emerging markets” in Southern California where data center projects are gaining support in communities that see the property type as economic development opportunities. 

“A lot of communities that are struggling see the benefit of having a data center in their community, which can turn a community over overnight from a community that’s struggling to a very profitable community,” Eades said.

Eades declined to name cities that are embracing or courting these projects.

“I don’t know if they want a spotlight on them, but there are numerous cities around Southern California that are very open to it,” Eades said. 

Examples of cities that are pushing back are easy to find. The Inland Empire city of Perris made headlines when no one showed up at a public meeting for a smaller-scale data center at its local fairgrounds. Despite the absence of protesters at public comment, the city is voting on a ban on data centers on Wednesday. The nearby city of Riverside is also slated to hear a proposal to ban data centers within its boundaries this month. 

Inland Empire and High Desert cities have long been places where warehouse developers were able to move ahead with projects, even those with initial resistance, by reminding locals about the economic benefits and jobs these projects could provide. Such arguments either aren’t being made for data centers or are falling on deaf ears. 

The High Desert city of Apple Valley in March rejected a year-old plan to bring five data centers to the city of about 76,000. The cities of Indio, Coachella and Desert Hot Springs also put temporary bans in place this year. Indio is considering making its ban permanent. Coachella passed a permanent ban in late August, second in the nation after the San Gabriel Valley city of Monterey Park voted in June to permanently ban the property type.